Banks are using their proprietary mutual funds for more these than just stemming the outflow of deposits.
To meet clients' cash management needs, Continental Bank recently created an end-of-day investment system that moves assets from deposit accounts directly into one of its four, no-load money market funds.
Such "sweep" programs have been around for several years, but most involved mutual funds unrelated to the bank.
In the '94 version, banks are providing sweep services in part to generate assets for their fledging properietary funds.
Consultant Notes Trend
"It is becoming more common that banks have these cash management vehicles," noted Eli Neusner, a consultant with Cerulli Associates Inc. in Boston.
While some banks can sweep money into products other than mutual funds and others offer end-of-day, next-day sweeps, "those usually do not pay competitive returns, and have high transaction costs and enrollment fees," said Timothy Jackson, product manager for Continental's 231 Funds.
Only a few other financial institutions, such as Boston-based BayBanks Inc. and Barnett Banks Inc. of Jacksonville, Fla. offer a similar same-day, end-of-day service, and Continental claims it is the first Chicago-area bank to provide this featue.
Meeting a Demand
The new service, known as FundSweep, automatically invests assets in one of Continental's proprietary funds.
Customers determine how much they want to keep in demand deposit accounts, and the overflow is automatically moved into the mutual funds.
Continental created this service in response to customers' requests, Mr. Jackson said. "The convenience of money market funds was there, but what customers really wanted was a turn-key approach," he said.
Now, 15 commercial customers use the service, sweeping about $7 million in assets into the bank's proprietary funds.
Since there are not transaction charges or enrollment fees, the bank makes money with a shareholder service fee based on assets generated by the sweep.
No Effect on Bottom Line
The feature is also "a great way to generate assets for your mutual fund complex," Mr. Jackson said.
But, Cerulli's Mr. Neusner added, "it's not really going to effect the bottom line."
Making money is not the reason for offering a sweep service, Mr. Jackson said. While the product manager said the sweep feature is "very attractive," he said other services such as cash management and credit are more important in generating new business.
"It will help in prospecting, but we'll never make a deal just on that," he said.
Mr. Neusner agreed that it's a "nice convenience" as an additional feature, "but it's not in the top five features banks offer."
In the future, Continental plans to create a service to sweep pension fund assets, and other assets under custody, into the 231 Funds from trust accounts.
The fund family, which was launched last September, has about $2 billion in assets.