A Long Island, N.Y., provider of back-office services to mutual funds is gearing up to help small banks start their own funds.

American Data Services Inc. of Hauppauge said it will oversee registration, marketing, and administration for banks that have sufficient trust assets to convert to mutual funds, said Michael Miola, the company's president and chief executive officer.

Banks that have the assets - but lack the management expertise - can turn to American Data's roster of subadvisers. Those that lack sufficient assets, a cutoff that varies by institution, have another option: putting a proprietary wrapper on third-party funds.

"Traditionally the barriers to entry have always been the cost of forming these funds," Mr. Miola said. "With our expertise in doing this for many, many years, we have formulated an approach that is very economical."

American Data, which has $5 billion of assets under administration, is mainly targeting banks with assets of $500 million to $4 billion. But persuading them to get into the mutual fund business will be a challenge, said W. Christopher Maxwell, principal of Maxwell Associates, a consulting firm in Rockhall, Md.

There are not many banks "with the potential to start their own funds that haven't already done so," he said, and some that have are probably too small.

Nonetheless, Mr. Miola said he expects banks to warm up to the idea after reviewing the expense ratios and financials of the more than 40 mutual funds that American Data has started, primarily for investment advisers.

The company has two bank funds under its belt, for Canandaigua (N.Y.) National Corp. The $432.8 million-asset banking company was managing $28.9 million of assets at the end of March, according to Lipper Inc. of Summit, N.J.

Banks that sign up with American Data could turn a profit once their funds top $7 million of assets under management, which is much lower than the industry average of $20 million to $30 million, Mr. Miola said.

American Data said it plans to mail out marketing literature in July that will discuss the options, as well as educate banks about the benefits of managing mutual funds.

Mr. Miola said he hopes to begin signing up banks by the end of September. American Data is in talks with a few banks, he said, but it is early too identify them.

Executives from two small banks had mixed reactions to the idea of managing their own mutual funds.

Michael T. Downham, the executive vice president of ANB Financial Planning Services, a unit of ANB Corp. of Muncie, Ind., said it is not a high priority for the $550 million-asset bank but is something to consider.

"If we knew what all the benefits were," he said, "it might be a higher priority for us."

Another bank that has been growing in recent years said it has been contacted by three to four firms in the past year but is not quite ready to take the plunge into proprietary mutual funds.

"It's something we probably will look at within two years but not right now," said James V. Elliott, president and chief executive officer of Investors Trust Co., a unit of $2.1 billion-asset National Penn Bancshares of Boyertown, Pa.

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