Capital Bank, a newcomer to mutual fund sales, has hit on an unusually aggressive strategy for attracting business: Raid the competition.
The Miami bank, with $1.2 billion of assets, is crafting a strategy whereby customers transfer administration of existing mutual fund investments to the bank.
To accomplish that, the bank plans to offer a wide range of brand-name funds to that banking customers can consolidate their financial relationship under Capital's roof.
|A Lot of Sense'
"To me that makes a lot of sense," said Thomas J. Flood, executive vice president of retail. "I really believe the idea now is more ripe."
With the unusual strategy, Capital Bank will be facing off against large competitors like Barnett Banks, NationsBank, First Union Corp., and Sun-Trust Banks Inc. -- all well-entrenched in mutual fund sales.
By persuading its customers to transfer administration of mutual funds, Capital Bank hopse to snatch ongoing fees, known as "trailers," away from firms that sold the funds in the first place. Then, more importantly, the bank could grow its investment product relationship with the customers.
"Not having sold these products, I think we've lost that part of the customer's financial life," Mr. Flood said.
The bank, which plans to jump into the business later this year, had been looking at offering just a few Federated Investors funds carrying a Capital Bank label. But by also offering a universe of outside mutual funds, the bank enables the customer to avoid cashing out of a fund in order to go with Capital.
Mr. Flood said he was won over to the conversion strategy after hearing a Fidelity Investments executive speak at a conference last month.
The Fidelity executive, senior vice president Steven M. Grazanio, told bankers at a council on Financial Competition conference that they have " a very good chance of bringing customers back from brokerages."
Mr. Graziano said Fidelity's research found that convenience drives customers into bank branches. Developing needs-based programs for investment goals like college education or retirement could win those customers back, he said.
A Dissenting Opinion
Marketing One Inc., a Seattle-based company that markets investment products through banks, does not put much stock in Capital's idea of transferring existing outside investments.
Customers might face barriers to cashing out their accounts with a broker/dealer, and may not see an advantage in shifting accounts to a bank, said Reid Reichert, senior vice president and national sales director at Marketing One.
A bank may ultimately lure customer's outside investment relationships to the bank with its programs, but the primary goal for a fledging program should be reaching into the existing deposit base, Mr. Reichert said.
Would Focus on Existing Assets
Most bank customers have no outside investments, so converting existing assets in the bank to a new program should be the focus, he said.
A bank taking a passive approach to investment products might expect 70% of first-year sales from current deposits. A more aggressive program could take 40% from deposits with the rest coming from outside money, Mr. Reichert estimated.
Like Mr. Graziano, Mr. Reicherst believes goal-oriented investment programs can ultimately capture more of an individual's investments.
Capital plans to use those sorts of programs to lure the customer's investment products money back, Mr. Flood explained. Those programs are still on the drawing board, he said.
The company is leisurely developing a blueprint to market to retail, institutional, and private-banking clients.
No |Major Evaporation'
"The fact that we have not entered the market yet is not a major cause for concern," he said. "There has not been a major evaporation of our customer deposit base."
Mr. Flood said coming in late will make it easier to anticipate the regulatory hoops the bank will need to jump through. By later this year, he expects, new regulatory recommendations will be complete.
Though many banks of similar size have chosen to offer proprietary funds, Mr. Flood said Capital isn't interested.
Too many banks have taken that route despite warnings that they might not have the size to be successful, he said.
"I think it's a very delicate activity for a bank of our size to convince the marketplace that [what it offers] is far superior to wider-known names," he said.
Capital's trust department is small, making seeding of the funds a problem, he added.