Magazine article American Banker

Image Problem Stands in Way of Bigger Share of Fund Sales

Magazine article American Banker

Image Problem Stands in Way of Bigger Share of Fund Sales

Article excerpt

The sale of mutual funds, annuities, and other investment products is frequently cited as an important growth opportunity for commercial banks, and many bankers have looked to the sale of investment products to retain customer relationships and boost prof its.

With the high stock market returns and explosive growth of mutual funds since 1994, one might expect that mutual fund and annuity sales would make up a rapidly growing share of banks' business.Some 1,450 U.S. banking organizations, or about 20% of the ind ustry, sell third-party or proprietary mutual funds or annuities.

This proportion has changed little since 1994, indicating that many banks have not been lured by the prospect of profits from investment product sales as the stock market and mutual fund industry have grown generally.

Today, mutual fund and annuity sales account for less than 3% of banks' total noninterest income.

Banks sell mainly money market mutual funds. Though money funds they accounted for 85% of total mutual fund industry sales in the first three quarters of 1996, they were 93% of total bank mutual fund sales. Banks accounted for 22% of total money market mu tual fund sales in this period.

Their success in this market is partially due to the easy substitution of money market mutual funds for money market deposit accounts and other deposit products.

In contrast, banks have been relatively unsuccessful at selling the more lucrative equity and bond funds. Banks' share of total long-term-fund sales peaked at 7.8% in mid-1994.

Finally, investment product programs have been mainly a large-bank phenomenon.

Through the first three quarters of 1996, U.S. banks sold $687.8 billion in mutual funds and annuities, and banks with average assets of more than $15 billion accounted for about 90% of total banking industry sales. …

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