Banks that manage mutual funds, realizing the days of easy growth are over, are looking to highly sophisticated marketing techniques to take them to the next level.
After seeing their advance into the fund business stall somewhat, banks got back on track in the 12-month period that ended June 30. Their fund assets swelled 27.7% to $434.1 billion, solidly in line with the 27.5% growth in the mutual fund industry at large.
The data, compiled for American Banker by Lipper Analytical Services, Summit, N.J., showed that banks are slowly making strides in amassing equity assets - considered the cornerstone of a successful fund business. They also suggested that popular new offerings, such as asset-allocation funds, are helping banks attract more investors.
The findings come as larger banks are beginning to shed their status as newcomers in the mutual fund world.
Many banks that once relied on mergers and trust conversions to fuel their mutual fund asset growth have now racked up years of experience, giving them the skills and the credibility they need to doggedly compete for investors' assets. They are also adopting the marketing strategies that their more-established rivals have long employed.
"The larger bank holding companies advertise their mutual funds more now," said W. Christopher Maxwell, executive vice president and head of mutual funds for KeyCorp in Cleveland. "We have been much more effective in getting our message out within our own constituencies."
To be sure, the banking industry as a whole represents a shrinking sliver of the market for mutual funds. Banks' share of the $3.1 trillion fund universe slipped to 13.6% during the second quarter, down from 13.8% at the end of the first quarter, and from 15% in June 1995.
But the characteristics of the bank funds are starting to change - albeit slowly - to more closely resemble those offered by nonbank competitors. At the end of the second quarter, equity funds held 26.9% of bank fund assets, up from 23.2% one year ago. Shorter-term money market funds, meanwhile, held 56.3% of assets at June 30, down from 58% last year.
Bankers say that much of the increase in the coveted equity category comes from inflows, rather than performance gains. A number attribute the growth to the success of asset-allocation funds, which invest in a mix of stocks, bonds, and money market instruments that shift periodically as market conditions change.
At No. 17-ranked KeyCorp, for example, Mr. Maxwell said that assets in the bank's new KeyMap asset-allocation account doubled in the second quarter compared to the first.
"We introduced and promoted the product for the first time, but those levels of productivity are going to hold," Mr. Maxwell said. Equity funds represent approximately 31% of KeyCorp's $7.1 billion worth of proprietary fund assets.
R. Gregory Knopf, managing director of Unionbancal Corp.'s Stepstone Funds, tells a similar story. The San Francisco-based bank saw assets in its allocation account hit $36 million in the second quarter, up from $22 million at the end of March.
The bank has recently begun to market its asset-allocation account in conjunction with its Priority Banking Group, which serves the emerging affluent. A mailing by that unit offered free asset-allocation software to customers who came in to discuss the product with a broker.
"We've really been pleased," Mr. Knopf said. "We've really put the push on that product and it's really good for customers."
Unionbancal, which at the end of the second quarter had $4.03 billion worth of proprietary fund assets, early next year plans to offer its funds through a toll-free telephone program dubbed "Funds Direct," Mr. Knopf added. It is also exploring ways to distribute its funds through registered investment advisers and other brokers.
Of course, banks are still somewhat reliant on mergers to help build fund assets. When Unionbancal merges the funds of Union Bank with Bank of California's early next year, assets in the fund complex will hit $4.5 billion, Mr. Knopf said.
And, a second wave of trust conversions now seems likely as President Clinton is poised to sign a tax-free common trust conversion measure into law. (See related story, page 13.)
But overall, bankers today are working to build assets through more active and sophisticated marketing plans. One of the industry's pioneers, Chase Manhattan Corp., plans to call more attention to the performance of some of the lesser-known equity funds in its Vista family this fall.
"We're going to do more in advertising to make people realize that Vista is a quality fund company," said Dave Klassen, vice president and equity portfolio manager for Vista Funds. "The thrust is to get people to know what we're doing."