Traditional pension plans, frequently dismissed as a sleepy backwater of banks' investment management business, could be important to the growth of bank-managed mutual funds.
That's the message bank consultant Amy Errett delivered at a recent industry conference when asked to forecast future sales opportunities for banks in the mutual fund business.
"You'll see a resurgence in the defined-benefit business," Ms. Errett, chairman of Spectrem Group, San Francisco, said at the conference, sponsored by the National Investment Company Service Association.
Banks have long played a major role in administering these plans, in which corporate treasurers select and oversee investments that will fund employee pensions. They are called defined-benefit plans because employers must pay predetermined benefits to retirees, regardless of how their investments perform.
Banks have already made inroads in the newer end of the pension business - administering so-called defined-contribution plans, such as 401(k) plans. In these plans, employees make investment decisions and receive retirement payments based on the returns.
Ms. Errett also predicted banks will grow their funds by marketing them through smaller financial institutions.
She believes community banks will shun mutual fund companies in favor of receiving products and services from large banks, provided these banks lie outside their markets.
The process has already started at a handful of banks, including Premier Bank in Baton Rouge, La., which sells its funds through smaller banks.
Ms. Errett also expects small banks in different parts of the country to get into the business by pooling investment assets into a single family of funds.
Despite opportunities, not all programs will thrive, Ms. Errett said. Infighting among various bank units - trust, brokerage, private banking - will kill some operations; others will fall victim to their limited reach.
"Smaller banks with stalled programs will exit the business," she said.
Ms. Errett declined to speculate about which banks might be looking to get out, but said mutual fund companies, insurers, and other banks are already lining up to buy them out.
Big banks are particularly eager to snap up their smaller brethren's mutual funds, Ms. Errett said.