Angling to attract a wider audience for its preferred municipal bond account, John Nuveen & Co. is promoting the investments as an attractive alternative to certificates of deposit.
By positioning the Munipreferred funds as a relatively safe, liquid, tax-advantaged alternative, the Chicago-based mutual fund company has boosted sales through banks.
While the bulk of its Munipreferred sales have historically been through wire houses, sales through banks are booming. In the past seven months, sales of Munipreferred in banks have grown 37%, according to the company.
Munipreferred is the preferred stock issued by several of Nuveen's tax-free funds that invest in a diversified portfolio of municipal bonds to provide short-term income.
For investors who want short-term investments, buying Munipreferred is generally better than buying municipal bond funds directly for several reasons, Nuveen executives said.
First, Munipreferred is sold on a no-load basis, meaning there are no sales fees. Dividends are paid on a weekly basis, which is attractive for investors who want a weekly income stream.
Once considered the domain of institutional investors, it is now beginning to be thought of as a "plain-vanilla product," said Scott Craven Jones, product manager for Nuveen Munipreferred.
The company has also taken steps to increase its appeal among retail investors and the bank's high-net-worth customers.
In early January, Nuveen reduced the minimum par value from $100,000 to $25,000. Lowering the minimum investment helped attract retail investors and larger customers who wanted to purchase additional shares in smaller increments.
Rivals Follow Suit
Although competitors were skeptical at first, they followed Nuveen's lead and lowered their minimums. "We were the first to sense that it had retail appeal," Mr. Jones said.
Nuveen's strategy appears to have worked. Retail sales of Munipreferred now account for 80% to 90% of the products' sales, up from about 10% in 1989.
However, Mr. Jones said "the natural market for Munipreferred remains untapped."
Mr. Jones believes that there is still a large segment of the high-net-worth market that is unaware of the product.
Munipreferred is an ideal product for banks who target affluent customers and trust customers, Mr. Jones said.
Geared to Affluent Customers
At $25,000 a share, the product is geared toward the type of customers that use private bankers, he said.
About a quarter of the affluent marketplace have a municipal bond fund, according to PSI, a Tampa-based research firm.
Nuveen Munipreferred's yield, which was 2.7% to 2.8% on Monday, is attractive compared with other short-term investments and is rated AAA by both Moody's and Standard & Poor's, the major securities rating agencies.
Shares can be tendered at weekly auctions, providing greater liquidity than CDs.
In addition to the three principal selling points - yield, safety, and liquidity - income is also tax-free, a particularly appealing feature since the Clinton tax plan was passed.
One drawback in the bank channel is that Munipreferred can only be sold by brokers with a Series 7 license, the National Association of Securities Dealers' license that enables sales representatives to sell such securities.
Many sales representatives based in banks only hold the Series 6 license, restricting them to selling mutual funds.
However, Mr. Jones said that licensing requirements have not hindered bank sales.
In addition to its national funds, Nuveen now has Munipreferred products for 17 states, including many high-tax states.
The market for preferred municipal products is about $17 billion overall, of which Nuveen has about $7 billion worth.