SEI Corp. is bowing out as distributor for Banc One Corp.'s $5.1 billion-asset family of mutual funds, citing differences over strategy.

The mutual fund administration company, based in Wayne, Pa., announced it will not bid on a contract with the One Group of Funds that comes up for renewal on Nov. 30.

SEI objected to Banc One's plans to do more of its mutual fund servicing work in-house, Richard B. Lieb, president of SEI Investment Services Group, said in a news release.

Shrinking Profit Potential

"Unfortunately, Banc One's strategy and ours are no longer compatible," he said.

The shift would have transformed SEI from, a partner of Banc One to a mere vendor, and would have made it "impossible for SEI to earn "reasonable" profits, Mr. Lieb explained.

Paul Walsh, chairman of BancOne Diversified Corp., said a new distributor will be chosen by the end of September.

The decision to bring some mutual-fund services in-house is part of a push by the Columbus, Ohio-based bank to "unbundle" services currently provide by vendors, Mr. Walsh said.

By law, banks that act as investment adviser to a family of mutual funds are prohibited from "distributing" the funds.

The Distributor Function

To market proprietary funds, banks form partnership with nonbank distribution companies, which organize, register, and seed the funds and offer shares for sales.

These distribution companies typically provide their bank clients with a range of services - some of which the banks could legally do themselves.

These services include mailing prospectuses, maintaining custody of securities, and hiring subcontractors to take pieces of specialized, functions, such as legal services and third-party distribution.

By uncouping the distribution of its funds from the other administrative functions, Banc One hopes to gain more control over its mutual fund operation both in quality and cost, Mr. Walsh said.

Trend Foreseen

Indeed, he added, more large banks are likely to follow suit.

"The larger bank funds, we know they are also looking to do this," Mr. Walsh said. "We're not alone in having these kinds of conversations."

At issue is whether banks can grow their mutual fund businesses by performing some of the vital service functions themselves, said Avi Nachmany, an analyst with Strategic Insight, a New York-based consulting firm.

"If the announcement is just the ability to save a little bit, there's nothing special about it," Mr. Nachmany said. "The question is, are the needs of the bank changing in terms of the support they're getting from their alliances?"

Quick Reflexes

For example, if a fund introduces new pricing structures such as level or back-end loads, or dramatically changes the line of funds offered, a servicer must be able to adjust, especially in the face of rapid growth, Mr. Nachmany said.

SEI officials said that while the Banc One contract added bulk to SEI's business, "it has not been a big profit contributor."

At midyear, SEI Corp. was the fourth-largest administrator of bank-related funds with $17.4 billion as of June 30, according to Lipper Analytical Services Inc.

SEI said it has added six new fund families in the last eight months, pushing its total assets under administration to $20 billion, even after the loss of Banc One.

Continuing Relationship

The company also manages its own $19 billion-asset SEI Funds, bringing its total assets under administration to $39 billion.

Banc One will continue to be a large SEI customer in the trust processing and funds consulting side of the business.

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