After years in the shadows of mutual funds, variable annuities are shaping up as tough contenders for bank customers' investment dollars, a study of 47 banks with active investment sales programs has found.

The banks' sales of the tax-deferred investment contracts totaled $920 million for the 12 month period through February 1994, according to the study by the Bank Insurance Market Research Group, Mamaroneck, N.Y.

While that is just a sliver of the roughly $10 billion in mutual funds sold by the 47 banks, it is a dramatic increase from two years ago, when variable annuities were barely a blip on the banks' radar screens.

Sales of variable annuities now make up one-fourth of the banks' total annuities sales of $2.93 billion. The remaining $2.01 billion in sales consisted of fixed annuities.

Both types of annuities are insurance contracts that yield a tax-deferred stream of income, typically upon retirement. But while fixed annuities offer a set return, the return on variable annuities fluctuates with market conditions.

The popularity of variable annuities is directly tied to consumers' enthusiasm for mutual funds, said Andrew Singer, managing director of the research firm.

Variable annuities are "a natural progression" from mutual funds, Mr. Singer said.

Bankers believe variable annuities will become even more popular, with sales expected to grow by 59% over the next 12 months. Growth rates for fixed annuities and mutual funds are both pegged at around 25%.

But for now, mutual funds maintain a clear lead, according to the study, which also looked at sales volumes, the profitability of different products, sales approaches, and emerging areas of business.

The study found that banks have more than doubled their mutual fund sales volume since 1992. Annual sales now average $224.8 million per institution, up from $105.3 million in 1992.

By another gauge, the average financial institution sells $8 of mutual funds for every $1,000 of assets on its books. Two years ago, banks were selling $5 of funds for every $1,000 in assets, the study said.

Banks typically look at these "penetration" rates to gauge the impact of their investment sales efforts. "By almost all measures, mutual fund sales in institutions have soared in the last two years," Mr. Singer said.

In many cases, customers are tapping bank accounts to come up with their investment dollars. Two-thirds of the financial institutions said that most of their annuity sales were coming from existing deposits.

Financial institutions average $22 in pre-tax profits for every $1,000 of variable annuities sold, and $17 for mutual funds. Fixed annuities offer an even greater margin, $26 for each $1,000 in policies sold.

Customers typically spend $19,410 for each annuity, and $15,340 on mutual funds, the study said.

Bankers continue to tout non-credit life insurance as an emerging area, with 28% of respondents seeing this product as the next area of significant growth.

But banks still have a long way to go. The leading seller of non-credit life insurance did just $10 million of sales last year, the study said.

"While mutual fund and annuity sales have certainly boomed, the same can't be said for traditional life insurance sales," Mr. Singer said.

Almost all of the surveyed banks use brokers whose only job is to sell investment products. Most of these institutions supplement their efforts with "platform" staff that offers mutual funds and insurance products along with other services, like opening checking accounts.

Brokerage programs account for more product sales, but are also more costly to run, the survey said.

For example, banks earn $20.70 for every $1,000 of fixed annuities a broker sells. This compares with $36.20 when the same product is sold by a platform staffer.

Banks earn more from platform programs because their salespeople are already on the payroll, and receive modest commissions on sales.

Nearly 60% of respondents continue to work with investment product marketing firms. But institutions that do not have these alliances report a higher penetration of their deposit base.

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