Mutual fund sales slipped last year, but the banking industry, a relative beginner in the business, did only half as badly, a consultant's report shows.
Preliminary data from 85 banking companies tracked by Kenneth Kehrer Associates in Princeton, N.J. indicate that sales dropped 17% last year from 1998 levels to $38.2 billion. That compares to an industry-wide 35.8% drop to $145.5 billion, according to Boston research firm Financial Research Corp. The 85 companies account for 65% of mutual fund sales for banks.
Observers say the smaller drop in sales reflects banks' more conservative investment style and the fact they still manage more bond funds than stock portfolios. Moreover, investors poured $194 billion more into money market funds last year than they took out.
"In the past several years a rising tide raised all ships" including banks, says Kenneth Kehrer, president of the consultancy. "Last year the tide went out."
Despite spending billions acquiring mutual fund firms, bulking up marketing efforts and hiring managers, banks control only about 15% of mutual fund market share -- a figure that has been steady for about a decade, says Burt Greenwald, a Philadelphia mutual fund consultant. The recent dip suggests banks need to try harder.
"The banks still have to face up to the fact that selling mutual funds and other investments is a much more entrepreneurial business than their traditional deposit-gathering and loan business," Mr. Greenwald says.
To attract new money, banks should improve their management of proprietary funds and sell more aggressively, says Geoff Bobroff, a mutual fund consultant in East Greenwich, R.I.
Conservatism is old hat
"Bank proprietary funds tend to be more conservative," Mr. Bobroff says, a drawback in an era when tech-heavy funds are the flavor du jour.
Banks are making moves to strengthen the managements of their fund units. First Union Corp. of Charlotte, N.C. -- whose Evergreen Funds are biased toward small- and mid-cap value stocks and have been lackluster performers -- last year raided American Century Investments for a team.
Bank of America Corp., meanwhile, employs a wide range of subadvisers who have strong expertise in different investing disciplines.
"Most firms either manage it all in-house or send it out," says Robert H. Gordon, president and director of Banc of America Advisors Inc. "We do both."
For instance, hotshot manager Thomas Marsico manages two funds for the banking giant and on April 1 will launch another, an all-cap growth fund.
Besides bolstering investment management, banks need to get more aggressive in marketing funds to clients, Mr. Bobroff says.
Banks are boosting their sales forces organically and through acquisition. For instance, First Union has acquired brokerages Wheat First Butcher Singer of Richmond, Va., and Everen Securities of Chicago, but also has hired more salespeople, including Maryann Bruce, a veteran of OppenheimerFunds Inc. and Allstate Corp., to oversee sales efforts.
Buying brokerages that have strong sales cultures could prove more fruitful than building in-house because a home-grown force might reflect the generally conservative nature of banks.
"As (banks) replace traditional sellers with brokers, they'll look more like a brokerage," says Mr. Bobroff. "That's a transition that's occurring."
SouthTrust of Birmingham, Ala., has stepped up marketing efforts for its funds and the results showed in 1999, when its assets grew 24.8% to $1.5 billion.
"That's good aggressive marketing," says Richard White, president of the bank's Capital Management Group, which has been pushing the funds to retirement plans as well as consumers. "We have an experienced sales force."
