Northern Trust Corp., already a big bank player in managing mutual funds for institutional clients, is preparing to make a major push into the retail market.
The Chicago-based banking company plans soon to introduce a family of funds for individuals, and will distribute the funds through more than 40 offices around the country.
Observers see the move as an attempt by the bank to snare customers beyond its traditional base of very wealthy people.
To get the business off the ground, Northern Trust plans to restructure a hefty chunk of trust assets as mutual funds. The maneuver - which could involve as much as $4 billion in common trust assets - would be the second big trust conversion by a bank in recent weeks.
Norwest Corp. recently disclosed plans to convert $3 billion in trust assets to mutual funds. Such conversions are a common way for banks to build mutual fund assets quickly, but few have been as large as those planned by Norwest and Northern Trust.
The new family of funds, dubbed the Northern Funds, is designed to appeal to the highnet-worth clients that have long looked to Northern Trust for their trust and private banking needs.
The Northern funds will co-exist with the bank's 14-fund Benchmark product line. That family, which now boasts close to $7 billion in assets under management, is primarily marketed to institutions.
After the conversion, which is subject to a battery of approvals from regulators and clients, Northern Trust would have a total of about $11 billion in mutual fund assets under management. That would buttress the company's position as one of the five biggest banks in the field.
Northern Trust officials say the new funds will be more attuned to the needs of individual investors, taking into account factors such as the tax consequences of buying mutual fund shares.
Investment Styles |Different'
"The investment styles of the 401(k) market and of the individual investor are very different," said Sheila Penrose, a Northern Trust executive vice president in charge of trust and financial services.
Northern Trust officials were reluctant to provide details on the new funds, as they have yet to be approved by regulators. But Northern Trust chief executive David W. Fox told securities analysis in New York last week that the family will be sold through Northern's 42 offices in five states.
While the funds will initially be marketed to Northern Trust's existing client base, industry sources say Northern Trust bankers also want to use the funds to tap into a new market - the "emerging affluent." The segment consists of individuals with a minimum annual income of $100,000 and at least $100,000 in investable assets.
A Sensible Strategy
Observers of the $16 billion-asset company said that strategy makes sense for Northern Trust. The individuals it serves are among the nation's wealthiest, coming from the top 2% of the population in terms of household financial assets. The average member of that market is over 60 years old.
"What has happened is that their clientele is aging," said Joan T. Goodman, an analyst at Pershing Co. in Chicago. "They need to look for some new sources of business."
Northern Trust officials said the new offerings will be no-load funds, meaning they will not carry a sales fee. That is relatively unusual among bank proprietary mutual fund programs, but it is consistent with Northern Trust's philosophy that its clients should not have to pay for investment advice.
It won't be the first time that the banking company has employed aggressive pricing in the mutual fund business.
Eight Benchmark funds specifically designed for the retirement market offer volume discounts for big plan sponsors.
Goldman Sachs & Co. acts as distributor for the Benchmark funds. But the new family will be handled by Sunstone Financial Group, a small Milwaukee firm founded by a former employee of Firstar Trust Co., also of Milwaukee.