Few people have witnessed the growth of the bank mutual fund business as closely as Richard B. Lieb. He is a 22-year veteran of SEI Investments, Oaks, Pa., a leading partner of banks that manage mutual funds.

Mr. Lieb is president of SEI's investment systems and services division- one of its primary business lines, others being asset management, liquidity services, and services for nonbank financial intermediaries.

The investment systems and services division provides technology and back-office processing support for trust departments, plus a wide range of services to proprietary mutual funds. The division expects revenues of $240 million to $250 million this year, Mr. Lieb said. It usually produces about 70% to 75% of the company's total revenues.

As a fund administrator and distributor, SEI is one of a handful of companies that help banks create, market, and manage their own mutual funds. It also provides an array of technology-intensive services-from accounting to shareholder servicing-that keep fund companies humming.

Among Mr. Lieb's largest clients are the mutual fund families of SunTrust Inc. and U.S. Bancorp-companies that he, with admitted bias, rates among the best in the business. All told, SEI administers $86 billion in domestic fund assets on behalf of 15 bank clients, plus $16 billion for nonbanks and offshore clients.

Mr. Lieb stopped by American Banker's New York offices recently to talk about how the bank mutual fund business has evolved.


Many banks have been managing mutual funds for a decade now. What changes have you witnessed?

LIEB: Banks have come to realize in the past two or three years what they have to do to be in the business. They've got to pay to get talented managers. They've got to offer programs to individual investors. And what may be good for the institutional market is not necessarily good for people with a high net worth.

The banks' level of sophistication has dramatically increased. Their capabilities have gone through the roof. And many of them, though not all of them, are now on the verge of becoming real sales machines.

Now the struggle for banks is: Where are they going? What's their niche?

What answers are banks coming up with?

LIEB: They are finding that there are a number of directions they can go. They can become mutual fund and money management supermarkets-create a brand and go after everything from retail customers to huge institutional accounts.

Some can be global players. Now, that takes energy and focus by the bank. The competition is really pretty staggering.

There are also regionals that will end up outsourcing a bunch of pieces of what they do. For instance, they'll supplement their offerings with funds or investment styles that they lack.

Finally, there are community banks. Despite mergers, that segment is growing for us, not shrinking. There are many community banks in the investment and trust area that do great if they are relationship focused. They outsource everything, and they have niches that range from A to Z.

How do you define community banks, and how do you work with them?

LIEB: We mean banks with less than $700 million in trust accounts. Our message to them is that the way you compete with that Edward D. Jones brokerage office down the street is to come in every day and focus on selling or servicing customers and prospects. If you open your Daytimer and you've got five internal meetings in a day, forget it. You're going to fail.

How do you rate banks' mutual fund sales ability?

LIEB: Two years ago, I would have said it's pretty abysmal. But banks have really embraced the sales culture. Years ago when we mentioned incentive compensation, the response was, "What do you mean?" We'd say, "You've got to understand that Putnam (the Boston-based mutual fund company) is paying people three times what you're paying, and that's why they're able to process funds."

Now they get it. They'll hire people from fund families. So where they once had 10 people, they now have 80, or 100, or 120.

Have banks found a balance between managing their own funds and selling funds that other companies manage?

LIEB: There's not a short answer, but here's what's going on, at least with our customers.

What they have figured out is that for proprietary funds to get a decent share of their total fund sales, they need brand, they need customer awareness, they need strategic plans. They need focused programs, not just products. They need talent in the money management area. And they need good relationship people.

There are many banks that are investing in that. And as a result of that, their percentage of proprietary fund sales is growing. Some of our customers routinely have half their sales in proprietary products.

Now the next part of the struggle is: Am I a supermarket or not? Because if I am, then I've got to sell everybody's funds. And then I've got to struggle with how my funds fit in. The banks are very ambivalent on this point. They think, If I don't sell Fidelity, I'm going to lose some people. But if I get investors in, I've got the relationship, and I can cross-sell.

How much attention do bank CEOs these days give to their mutual fund businesses?

LIEB: It's at the top of their list. What we hear a lot from customers is, "I'm making a presentation to the CEO, here is the following information, I need you to add detail."

That's a big change. Five or six years ago, this business wasn't even on the CEO's radar screen. Eight or nine years ago, if you looked at the majority of CEOs, they were commercial lenders. Now they're businessmen.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.