Investment Companies Lash out at Banks for Limiting Fund Choices to 'Short Lists'
Kapiloff, Howard, American Banker
How much choice is enough when it comes to mutual funds? In recent years, the answer from banks has been that less is more. They have relentlessly trimmed the number of mutual fund families on their "short lists" - the rosters of products that they recommend to investors. The idea was to avoid overwhelming both investors and brokers with a vast array of products.
But fund company executives are becoming increasingly critical of the practice. They say competition for berths on short lists has gotten out of hand, with banks demanding everything from computer software to a slice of the revenues. What's more, fund executives maintain, the practice may actually be hurting consumers.
"Banks are limiting the availability of products to the client base and are forcing the product on the sales force," said Elie Genadry, president of the institutional services division at Mellon's Dreyfus Corp., New York. He maintained in a recent interview that lack of selection has been a factor in the decline in mutual fund sales at banks.
Another fund executive, speaking on condition of anonymity, put it more forcefully: the practice of short-listing "is having a whiplash effect at the customer level."
Several mutual fund executives said the selection of funds at some banks is so limited that banks may be unable to help customers diversify their holdings adequately. As a result, customers may find it hard to ride out the market's ups and downs.
And some fund managers are walking away from deals in which banks are demanding a slice of a fund's revenues.
"There are a couple of programs we're not in because we weren't willing to step up to the plate and pay what other companies were paying," said Toby Mumford, vice president and national sales manager for the bank division of Franklin-Templeton Group, San Mateo, Calif.
Despite the criticism from fund executives, only a handful of banks are moving to expand their product lists. BayBanks Inc., for instance, has added to an already-extensive list of mutual funds. And Great Western Financial Corp. is considering increasing its short list of eight funds.
"What we're basically looking for is the opportunity to round out the list of products we offer through our investment managers," said a spokesman for the Chatsworth, Calif. …