Small banks say the service they get from suppliers of investment products isn't what it used to be.

Despite widespread claims that it is excellent, service has suffered in the past couple of years, according to community and regional bankers.

"About two years ago we noticed an immense change, and it's been escalating ever since," said Peter H. Magnoni, president of Lake Insurance Services Inc., which sells insurance and investment products for its parent, $2 billion-asset Mutual Savings Bank of Milwaukee.

Mr. Magnoni and others attribute the deterioration in part to an explosion in investment product sales. The $5 trillion that the mutual fund industry is managing, for example, is five times the 1990 figure.

That growth has coincided with a strengthening job market-April's 4.3% unemployment rate was the lowest in nearly three decades-which has made it hard for vendors to retain employees, from wholesalers to the people who handle phone calls from bank customers.

Even well-known fund companies have a hard time maintaining their service levels, people in the industry say.

"There's no question that in small institutions there hasn't been as high a degree of coverage as before," said Ed Hipp, president of retail brokerage for Centura Banks, Charlotte, N.C.

Mr. Hipp has not taken the slackening of service lying down. When the mutual fund giant Putnam Investments conceded recently that smaller banks would not be getting the same level of treatment as larger ones, Centura dropped the Boston fund family from its preferred provider list.

In fact, this year Mr. Hipp told all eight mutual fund providers on the bank's A list that they would have to provide better service to keep that status. Service has since improved, Mr. Hipp said.

The strategy of having a short list of preferred providers is an effective way for small banks to get the leverage they need to get better service, said Burton J. Greenwald, a Philadelphia-based mutual fund consultant.

"The savvier bank that is offering investment products would be well advised to focus on a small group of mutual fund choices rather than providing a wider menu of products," he said.

Who is delivering the best service today? Mr. Hipp mentioned Kemper Funds, Chicago, which he credits for spending the money to increase staff and maintain good service. And industry watchers and several smaller banks singled out Security Benefit Group of Topeka, Kan., a provider of annuities and mutual funds, for praise.

"I don't know what their magic ingredient is, but they've been outstanding in service," said Louis Harvey, president of Dalbar, a Boston- based fund consultant firm that rates providers based on their service records.

Though many companies answer the phone quickly and mail statements on time, Security Benefit is good at handling tricky problems for which there are no formal policies or procedures, he said.

Mr. Magnoni of Lake Insurance Services said he has been impressed with Security Benefit's service in the four years it has worked with the company.

"If we have a customer who has a problem, we have confidence they will deal with it," Mr. Magnoni said.

Kevin Kilberry, who leads the financial institution sales channel for Security Benefit, said that providing better service is worth the thinner profit margins to his company because it builds strong relationships with distributors and end customers.

The company sold $60 million in investment products through banks last year-about 5% of its sales.

Mr. Greenwald, the fund industry consultant, said technological advances have improved service for many consumers. For example, he said, automated phone systems and the Internet have made accessing account information and performing transactions faster and simpler.

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