Small banks may lack the size of a Fidelity Investments, but that won't necessarily keep them from making a profit at selling mutual funds, a leading consultant contended.
Instead, many smaller banks have loyal customers that give them a competitive edge in the rough and tumble mutual funds business, said A. Michael Lipper, president of research organization Lipper Analytical Services Inc., Summit, N.J.
"You've got to look at it market by market, but some of these smaller banks have a strong presence in their markets," Mr. Lipper said in a press briefing last week in New York.
In the briefing, Mr. Lipper went through his yearly assessment of the mutual fund business. He also gave his take on how banks are faring in the business.
Mr. Lipper noted that the mutual fund industry is going through a wave of consolidation. But he added that the consolidation can help smaller banks sell mutual funds. Specifically, when rivals are gobbled up, small banks can burnish their reputations as stable, locally-owned alternatives.
Some bankers contacted after the press briefing said they concurred with Mr. Lipper's assessment.
"I agree wholeheartedly with him," said Darrell H. "Kip" Wright, trust investment officer at Brenton Banks, Des Moines.
"Customers feel a greater sense of ownership because they know the people who are managing their investment," he added.
In August, the $1.5 billion asset institution became the smallest publicly held banking company to run its own mutual funds, when it launched the Brenton Funds family.
With $56 billion of assets, Minneapolis-based Norwest Corp. isn't exactly a small bank. But P. Jay Kiedrowski, executive vice president for the banking company's investment and management trust division, said Mr. Lipper's comments also applied to his institution.
"We have a large distribution network and we have the trust of our customers," Mr. Kiedrowski said. "We can compete and we've used that formula to build our funds up to $7 billion (of assets under management)."
But most bank mutual fund programs are struggling to make a profit this year and bankers should expect more sluggish sales in 1995, Mr. Lipper warned.
Indeed, mutual fund sales across the country are off by as much as 40% from last year's record highs. He warned that bank executives have to "get behind their mutual fund" program or their sales efforts will fail.
"Banks that want to get into mutual funds have to be in it for the long haul," Mr. Lipper said.
To offset slow sales, Mr. Lipper said banks should spend more time marketing annuities. This is because annuities are better suited to a bank culture.
Investors in annuities need several meetings with brokers to learn about these relatively complex products, he explained. Banks are well suited to provide this personal support through their branch networks.
"I think it's ideal for banks, and you'll see sales of variable annuities increase next year," Mr. Lipper said.
This is good for banks, since annuities normally pay higher fees than mutual funds.
But another consultant, Edward E. Furash, chairman of Furash & Co., Washington, warned that too much emphasis on one product can actually hurt banks.
"The goal for banks should be to present a buffet of products, not limit yourself to one," he said.
Mr. Lipper gave banks some more good news when he said banks are gaining ground against regional brokerages in the battle for customer assets.