Magazine article American Banker

Banks Seen Missing out on Short-Term Fund Gains

Magazine article American Banker

Banks Seen Missing out on Short-Term Fund Gains

Article excerpt

As bank executives eye future fee income from their maturing mutual funds, they may be overlooking some obvious ways to generate profits now.

Industry experts say executives can boost their immediate returns with a few simple steps.

Carefully measuring mutual fund profitability, for instance, is one of the most important yet frequently ignored ingredients for improving a mutual fund operation.

Almost two-thirds of all banks surveyed do not separately calculate profitability for their mutual fund investment advisory activities, according to data collected by Paul Brook, partner and director for bank mutual funds at Ernst & Young, New York.

And those that do check profitability frequently understate the fund's proper share of expenses and overhead, he said.

Without thorough cost accounting, Mr. Brook explained, bank executives cannot accurately assess opportunities for savings - and improving profits.

Some bank executives agree.

R. Gregory Knopf, managing director of the Stepstone Funds, Union Bank, Los Angeles, performs a detailed annual analysis of expenses by business unit.

By making precise allocations, Mr. Knopf said he can calculate meaningful returns on revenue. "It gives us a gauge of whether we're making money on our funds - and we are," he said.

Beyond capturing cost and income information, Mr. Brook counsels bankers to create models for profits and losses.

Besides paying more attention to their books, bankers also need to harmonize the often contradictory aims of their brokerage and proprietary fund units.

"One of the keys is making sure that brokerage and advisory divisions within the bank work together," said Mr. Brook.

Brokerages bent on sales commissions can hamstring their banks' drive to capture assets in proprietary funds, if they concentrate on selling outside products, he added. …

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