Banks continued to sell more third-party than proprietary mutual funds in the fourth quarter, apparently because of an increasing buzz about funds combined with consumer preference for brand-name products.

A Bank Securities Association study found that third-party funds accounted for 38% of banks' investment product sales in the fourth quarter, up from 29% for the same quarter a year earlier.

Over the same period, bank proprietary funds fell to 5% from 6% of banks' investment product sales.

"American consumers and investors tend to buy for the brand," said Kenneth Kehrer, the consultant who conducted the study for the association.

Mr. Kehrer, who surveyed 16 banks of different sizes for the study, said third-party fund sales also grew faster than bank proprietary fund sales in the third quarter.

Mr. Kehrer attributed the trend to a renewed excitement about mutual funds, manifested in conversations like the one he overheard while in line at a museum recently, in which a woman complained that her fund had returned only 32% last year.

And he said that banks will not cash in as much as fund companies until they market their portfolios more aggressively.

At least one banker was not surprised by the findings. Curt Anderson, president of First Busey Securities, the brokerage subsidiary of Busey Bank, Urbana, Ill., said the bank does not have a proprietary fund family and does not plan to develop one.

"Clients view with suspicion people who try to sell them proprietary funds," he said. "We find it is a benefit, the fact that we don't."

For example, a husband and wife doctor team is moving all their business to First Busey after they became skeptical about the proprietary wirehouse funds they bought on the advice of that wirehouse's broker, he said.

Other banks said they are eliminating up-front charges on their proprietary funds to help them better compete with third-party funds.

Union Bank of California hopes that its new back end-load funds, introduced Feb. 1, will help proprietary sales rise to half its total fund sales by year's end, up from a third now, said R. Gregory Knopf, the vice president in charge of the proprietary HighMark Funds.

"We think that can make a distinct difference," he said.

Sanwa Bank of California is hoping that its no-load funds will give it an edge over third-party funds that are also sold at the bank.

Thanks to its asset allocation wrap program, rolled out in October, its Eureka Funds have accounted for 90% of fund sales over the last month, said Richard Weiss, chief investment officer at Sanwa Bank California.

William Hawkins, president of Home Savings of America's broker-dealer, reported similar results: 67% of all fund sales go to the bank's proprietary family, in part because the funds are incorporated into a wrap account.

The association's report also found that during the fourth quarter, banks' sales mix continued to shift to variable annuities at the expense of fixed annuities.

Fixed annuities fell to 16% of the investment sales mix from 25% a year earlier, while variable annuities rose to 19% from 12%. The fourth quarter appears to be the first in which variable annuities have outsold fixed annuities through banks.

The study also found that bank brokers were less productive in the fourth quarter than they were in the same period a year earlier. Monthly gross revenue per sales representative was $20,638, down from $21,864 for the fourth quarter of 1996.

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