With one bank partnership under way and another in the wings, Charles Schwab & Co. is preparing to find up to 10 more banks to offer its popular OneSource mutual fund program.

KeyCorp, Cleveland, began offering Schwab's OneSource supermarket of 2,000 no-load mutual funds to its customers last month. First Union Corp., Charlotte, N.C., is set to do the same this summer, perhaps as soon as next month.

By the end of this year, Schwab will begin looking for additional banks to offer OneSource, with the eventual goal of having six to 12 partners, said Timothy F. McCarthy, an executive vice president responsible for Schwab's mutual fund operations.

He said the firm wants bank partners with strong customer relationships, product knowledge, and mutual fund management. The San Francisco-based discount brokerage sees such banks as a bridge to thousands of consumers that it cannot reach by itself.

"There are a lot more bank branches out there than there ever will be Schwab offices. We don't reach that group by doubling our ad budget," said Mr. McCarthy, who outlined Schwab's plans in a meeting at American Banker's New York offices.

"There are certain customers that are naturally attracted to Schwab," he said. "There are a lot of customers, however, who are 'bank loyal,' bankcentric, or, from a geographic standpoint, closer to banks."

Mr. McCarthy also offered an olive branch to NationsBank Corp., just weeks after another senior Schwab executive publicly criticized the Charlotte-based bank's mutual fund supermarket.

That executive, senior vice president John P. McGonigle, who made his comments at a banking conference in April, was publicly rebuffed in published news accounts by Charles Schwab himself.

"NationsBank is one of our enduring, tough competitors," Mr. McCarthy said. "Of banks to be admired, NationsBank is at the top of the list."

That's not to say the two companies will break bread as partners in the OneSource program. But as Schwab strengthens relations with the banking community, it may want to quell any lingering resentment.

Yet before the discount broker starts looking for more bank partners, it wants to fully establish its two pilot programs, at KeyCorp and First Union.

"We want to get them fully hooked up and burned in," Mr. McCarthy said. Right now, "we're not talking to anyone else."

Obstacles to bank partnerships include working out a compatible computer system, linking marketing data bases, and training employees on both sides, Mr. McCarthy said.

"We've had 2,000 responses in two or three weeks," said Jack Kopnisky, president and chief executive of Key Investment Inc., KeyCorp's brokerage subsidiary.

At First Union, "we're getting de-bugged, tested, and thoroughly integrated. We want to be able to intertwine (OneSource) with our products, systems, procedures, and services," said Donald McMullen, executive vice president and head of First Union's capital management group.

"The reality is, if you want logistics to work well, you start it up and see how first trades go ... and you crawl before you run," said Mr. McCarthy, 44, who holds a Harvard MBA and is former president of Fidelity Investment Advisor Group. "Invariably, no matter how many hours get put in ... I've never seen a first day when you don't say, 'Oh, no' " about something.

Likewise, finding and building partnerships with banks will take several years, Mr. McCarthy said.

"It will take a long time to do it right. Our attitude, though, is that if we don't get everything right the first year, we'll go back and fix it and get it right the second year," he said.

Similar partnerships-with no-load mutual fund companies and with fee- only registered investment advisers-"took a long time to build," said Mr. McCarthy. "It took eight years with the registered investment advisers."

And with OneSource, Schwab needed a decade from conception (1982) to formal launching (1992), he said. At year's end, OneSource had assets of $39.2 billion, up from $23.9 billion in 1995 and just $1.8 billion in 1992.

Banks often don't have that kind of patience, he said.

Banks "are saying, 'I want to be instantly successful,'" he said.

To bankers, he said, "OneSource stands for several principles: an open architecture, open system, and the availability on a level playing field of a lot of funds that are very up-front about their performance and their costs. So it is a good value price-and-performance relationship."

In First Union's case, Schwab will help in the overall effort to give bank customers "a total financial package"-in this case, an established line of no-load mutual funds, Mr. McMullen said. This way, First Union can offer customers a fund supermarket with a proven record, while avoiding the expense of starting from scratch.

Likewise, KeyCorp offers OneSource as part of "an entire banking solution"-for instance, as part of a cash management or mutual fund wrap account, Mr. Kopnisky said. "This makes us more competitive with Merrill Lynch," he said.

Schwab wants banks that bring "a unique marketing proposition"- something that sets them apart from competitors. Both KeyCorp and First Union showed a "continued, demonstrated commitment to being ahead of the market," Mr. McCarthy said.

And the banks must be capable of bringing in "hundreds of millions of dollars" each in sales volume, he said.

Finally, Schwab may be looking for banks that are survivors.

"Those banks that are thriving today are lean and mean, and they're very enduring competitors," he said. "They've reinvented themselves, often two and three times over to stay au courant with the market."

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