As many smaller mutual fund companies find the doors of the bank distribution channel slamming shut on them, several are scrambling to find niches they can serve.

Unlike their larger counterparts, whose size and name recognition got them in the door, the smaller companies must exercise some creativity.

Many - such as Delaware Group and Pioneer Funds - are helping banks set up retirement benefit plans for small and midsize companies. Some are making their entry through trust departments.

"For a small mutual fund company like ours to take the same approach that a Colonial and Putnam did a few years ago would be suicidal," said an executive who heads the bank sales effort for one company.

"For us to spend the money to grow our own sales force so that it equals theirs - you're talking millions of dollars," said this executive, who asked that his name not be used.

And Kurt Cerulli, president of Cerulli Associates, a consulting firm in Boston, added: "When we get hired to position mutual fund companies for future growth, if they're not in the retail bank channel now, we advise them to stay out."

Mr. Cerulli's caution is understandable. Behemoths such as Putnam Investments, Franklin Resources Inc., and Fidelity Investments have already established solid beachheads in banks, virtually locking out their smaller competitors, consultants said.

That's in large part because banks - appreciating their own potential as a distribution channel - are making it tougher to get a foot in the door.

For example, banks are shortening their lists of preferred funds and demanding more in the way of marketing support from fund companies with which they align, said Mr. Cerulli.

Market share data are unavailable, but a January survey of brokerage units at 150 banks found that despite significant sales drops after 1994 Putnam, Franklin, and Fidelity remained leaders, according to Cerulli Associates.

A second tier of companies not far behind included Oppenheimer Management, Van Kampen American Capital, Colonial Funds, Massachusetts Financial Services, Aim Management, Federated Investors, and SEI Financial Services.

But smaller players such as Delaware Group, Keystone Group, and Pioneer Funds Distributor are not giving up. They are still finding openings in bank retail investment programs, such as helping banks break into the business of setting up retirement plans for companies that are borrowers.

Smaller fund companies see a window of opportunity in the 401(k) business, for instance, because they are more willing to share assets under management with their bank clients, consultants said.

Delaware Group, a Philadelphia-based firm that manages $9.2 billion of assets, is taking that approach with Wachovia Corp., Winston-Salem, N.C. The firm has fashioned a 401(k) retirement plan in which investors can choose between its funds and Wachovia's Biltmore Funds. Delaware Group is the exclusive provider of the bank's program, and it does the record keeping, too.

Delaware Group is finding other ways to break into banks. For example, to please Meridian Bancorp.'s brokerage unit, the firm dedicated one of its wholesalers to help the bank's brokers promote its investment program through customer seminars.

Pioneer, which manages $10.5 billion of assets, has a unique strategy focused on retirement plans. The Boston-based company is offering banks age-weighted profit sharing plans, a niche retirement plan designed for companies with 20 or fewer employees. The company is selling its program so far to the brokerage units at Barnett Banks Inc., La Salle National Corp., First Alabama Bancshares, and Sunburst Bank.

Pioneer dedicated a sales force to the bank channel only a year ago, and its vice president for financial institutions sales, Barry Knight, still sees profit potential. "Being new to the business, we haven't had a lot of opportunity to get into it. But it's still a $40 billion or $50 billion business out there," he said.

Peter Delehanty, Keystone Group's national sales manager, said banks are seeking funds with different investment objectives than the ones they themselves manage. That's why Boston-based Keystone promotes a small- capitalization fund and a global fund that are more aggressive than the average bank-managed fund.

"Most banks use name recognition as a way to sell mutual funds, but now the bank investment programs are getting more mature, and the channel is opening up to mutual fund companies that help them grow their assets under management," he said. Mr. Delehanty is trying to boost bank sales' share of his business to 10% from 7%.

While smaller fund companies admit they would rather be on a bank's preferred list than not, some say it's much harder to make money there than in other parts of the bank. Unlike more sophisticated trust department clients, individual investors tend to be jittery and switch their investments too many times, said Keith Mitchell, president and chief executive officer of Delaware Distributors.

But some fund executives insist the only way to compete with the big players is to merge, thus boosting the sales team devoted to banks. Van Kampen Merritt, for instance, which began targeting banks in 1984, acquired American Capital Management & Research Inc. last August. The new company is Van Kampen American.

"Before the merger, I had no chance to compete with the big players with their breadth of product line and portfolio management," said Scott West, Van Kampen American's director of financial institutions services.

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