When it comes to selling through banks, Putnam Investments is the Goliath of the mutual fund industry.

The Boston-based fund company, which manages $118.1 billion in retail assets, estimates that 95% of all banks that market mutual funds sell its portfolios. And even its competitors concede that Putnam's funds represent half of all mutual fund sales at most bank brokerages.

With numbers like that, it's no surprise that Putnam's top sales and marketing executive, William N. Shiebler, is optimistic about the future of bank investment product programs. "Banks will continue to have a major proportional share of the distribution of financial services products," he said. The key, he explained, is to keep improving the quality of the services they sell.

In a recent interview at Putnam's headquarters, the 54-year-old Mr. Shiebler, president of the distribution subsidiary, Putnam Mutual Funds, offered his view on the future of the fund and banking industries.

With the Dow over 6,000, what have you done to prepare advisers and their clients for a stock market correction?

SHIEBLER: We've been out all year long telling reps to diversify - not to get out of the markets, but to make sure their clients don't have five aggressive growth funds and call that diversification.

We tell them to advise their clients that the market could show some volatility. At the same time, there were a lot of people who got off the train at 5,000. And they missed the last 20% in the market. We're always reluctant to scare people out of the markets - particularly people who are long-term investors.

What is driving the current wave of consolidation in the mutual fund business?

SHIEBLER: Some of our competitors are selling out because they don't have the scale and the size needed in the business. We've got scale and size. We're about $170 billion in funds and pension assets.

But the real consolidation in the business isn't from M&A. It's shareholder activity. Take a look at the net flows. Since the beginning of 1994, 75% of the net flows have been going to five or six companies. Shareholders and brokers are saying 'I'm going to buy from a short list of funds.' That's what is driving mutual fund companies to sell out.

Are you folks in acquisition mode?

SHIEBLER: We're asked if we want to look at the information on every deal that comes along. We're owned by (insurance brokerage) Marsh & McLennan Cos. and we'd be remiss to our current company if we didn't look at these things as opportunities. But we haven't seen value in these deals.

Adding commoditized products like fixed-income funds to our product line isn't very sensible to us. That doesn't mean it doesn't make sense for a First Union to buy a Keystone.

Banks are decreasing the number of companies whose funds they offer. Will competitors that haven't made many banks' short lists retreat from that market?

SHIEBLER: Yes. The wholesaling of mutual funds is expensive, and you need a certain infrastructure to service a client. If that infrastructure becomes prohibitively expensive, you have to exit the business.

It's a matter of scale and priorities. If you have limited marketing resources, you have to make sure you're putting them in the places where you can be successful.

Everyone has short lists now, not just banks. But the banks are the worst because they started in the business later. We've locked ourselves in because we took the business very seriously. We saw great value in bank distribution.

How would you assess banks' ability to sell mutual funds today compared to when you first entered the market?

SHIEBLER: Their advisers have more experience, just by dint of time. Their management has more experience. I think the banks are in this to stay. They are constantly improving the services they sell. As along as they do that they will be viable, vigorous competitors.

Banks will continue to have a major proportional share of the distribution of financial services products. Whether they will be bigger than broker-dealers or not will really depend on what happens in the distribution industry.

I think there will be some consolidation among brokerage firms and banks - brokerage firms buying banks and vice-versa. The lines will blur pretty significantly.

In 1992, you said banks were responsible for 35% to 38% of Putnam's total sales. Is that still true?

SHIEBLER: Now it would be in the high 20s.

It's not a big drop. What happened is our business grew faster in other channels, because of the boom in the equity business.

That's not a criticism of banks. Business in the bank channel is bigger than it's ever been. They've done very very well. In '94 (during the bond market crash) their clients, and perhaps their brokers, backed away a little bit more than others. So that business came back more slowly. But it came back very strong in the second half of '95.

As banks get bigger and bigger, do you worry that they will soon sell only their proprietary funds and neglect Putnam's?

SHIEBLER: In 1981 and 1982, when Merrill Lynch, Dean Witter, E.F. Hutton, Prudential, and Shearson, among others, launched their internal asset management companies, people said 'it's the end of the world for outside money managers.' But our business has been growing at a faster rate than most proprietary fund groups.

With the banks, you have that same phenomenon. But there's another thing going on that wasn't present back in the early '80s. That's regulatory pressure. The regulators don't want banks strictly selling their proprietary products.

Also, the consumer wants a variety of choices. Great consumer organizations recognize consumer needs and desires and don't try to override them.

Sure there will be a big bank somewhere that tries to do a proprietary fund policy. But I think the regulatory and consumer pressure will make that a not-so-successful venture.

What does the advent of banks selling insurance mean for mutual fund sales?

SHIEBLER: I'm not too worried about that.

One of the big products at the turn of the century is going to be life insurance, particularly variable life insurance. A very small percentage will buy it, but they will buy it in big tickets.

Once someone has put away enough money for retirement, they then have a sizable estate-tax problem. And the best tool for putting assets into your heirs' hands on a tax-free basis is a life insurance trust.

We have a variable life product now and were doing a lot of product engineering. We plan to introduce more variable life in the future. We'll partner up with insurance companies to do it.

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