Wilmington Trust Co. has become the first bank in the country to assume the role of "distributor" for its own family of mutual funds.
The Wilmington Trust Corp. subsidiary was able to take on that role with its proprietary funds because it is state-chartered and not a member of the Federal Reserve System. The Glass-Steagall Act prohibits Fed members from distributing.
A distributor is responsible for organizing, registering, capitalizing, and promoting mutual funds. Its jobs include preparing prospectuses, proxies, and other shareholder reports as well as other marketing materials that comply with state and federal securities regulations.
After receiving an opinion letter from the Federal Deposit Insurance Corp. that Wilmington Trust could legally act as distributor, a unit of the bank began performing the function in January, without publicity.
The letter from Nicholas J. Ketcha Jr., regional director for the FDIC in New York listed Wilmington Trust's functions for the Rodney Square family of funds and said, "Based on the foregoing, this office has no objection to the transfer of duties of mutual fund distributor from Scudder Services Inc. to Wilmington Brokerage Services Co."
Wilmington Trust also believes it is buttressed by a 1991 federal appeals court decision allowing Citibank to underwrite and sell insurance through a Delaware subsidiary, said Martin L. Klopping of Rodney Square Management Corp., a Wilmington Trust Co. subsidiary.
"The Fed regulations don't snare us in their net," he said.
Mr. Klopping said other state nonmember banks are unlikely to follow Wilmington's lead. Few eligible banks have large enough mutual fund complexes to make assuming all the fund roles economically feasible. And, mutual fund companies are not interested in taking on just the distributor duties without some of the more lucrative functions, such as administrator, he said.
Along with the distributor role, Wilmington Trust also took over the transfer agent and administrative services functions.
State-chartered banks have long had the option of becoming distributors of proprietary funds. About six years ago, the FDIC gave Wilmington Trust a similarly positive opinion about acting as distributor for its own funds, but the bank did not go forward with them then, Mr. Klopping said.
Mr. Ketcha of the FDIC said in the more recent letter that Wilmington Trust Co. will not invest employee benefit accounts administered by its trust department in the Rodney Square Funds.
In addition, discretionary personal accounts will be invested only with written approval from customers, the letter noted.