John Rutledge Reviews Aspects of His New Sideline: Marketing a Family of Mutual Funds through Banks

By Sudo, Philip T. | American Banker, February 13, 1986 | Go to article overview

John Rutledge Reviews Aspects of His New Sideline: Marketing a Family of Mutual Funds through Banks


Sudo, Philip T., American Banker


ALL ALONG, JOHN Rutledge had been telling banks what they needed. Last year, he decided to give it to them. The former senior international economist with the U.S. Treasury Department still spends half his time forecasting interest rates and offering investment advice, but now he spends the other half selling a new family of mutual funds -- often to the same banks he advises.

Mr. Rutledge, 37, is chairman of Claremont Economics institute and, more recently, chairman of the Claremont Co., an affiliate that offers four mutual funds for bank distribution only. Both operations are based in Claremont, Calif.

With interest rates on traditional deposit accounts likely to stay low this year, many banks feel they have to diversify their product lines to keep their higher-balance customers. Mutual funds are often the first product they look to, for even average customers are taking note of the stock market's recent successes and eyeing mutual funds as their entry into the world of bonds and equities.

"As advisers, we kept concluding for five years running that a bank ought to be getting into areas that increase balance sheet fee income," Mr. Rutledge said, citing the increased risks and narrowing margins of the loan business as growing problems for deposit-taking institutions.

"Once you make the commitment to become a distributor, you need to know where to get the product and who to get it from," he said. "The fact that we already had a relationship with the chairman of the bank and he could trust our quality made it easy to offer a mutual fund family that plugs into a bank servicing system."

The funds have been in business since June 1985 and, with only a handful of banks in the program, already have more than $20 million in assets. Among the banks participating are Irwin Union Bank and Trust Co., Columbus, Ind.; Midwest National Bank, Indianapolis; Oak Park Trust & SAvings Bank, Oak Park, Ill.; Banc Texas, Dallas; First Trust Bank, Ontario, Calif.; and La Cumbre Savings Bank, Santa Barbara, Calif.

Claremont, whose name is on the product, does all the marketing of the funds -- a money market fund, a stock fund, a bond fund, and a combined fund.

The bank does all the servicing, handles inquiries from shareholders, and organizes meetings during the year at which Mr. Rutledge performs what he calls "an economics show." For this the bank receives a servicing fee of 0.4% of the assets it brings in.

The asset-mix advising and quality control work are handled by Claremont, and security selection is performed by a group of 11 Wall Street companies.

"It's kind of an NBA All-Star team approach, where you bring in people who are the best at doing one thing, put them all together in a package, and then sell the package through a network of banks around the country, and then bring that to the shareholders," Mr. Rutledge said.

What follows are excerpts from a recent interview with Mr. Rutledge, in which he offers his views on how to sell mutual funds through banks and on problems that bankers face in general.

Q. Why do banks need mutual funds?

A. The idea is that many bank customers now have enough investment balances together so that they want more of a mix of assets than just fixed-rate deposits. From a bank's perspective, they'd like the customer to do that in the bank rather than going out and opening an account with a broker. Many times these are people who've never done business with a broker.

Q. If banks are going to distribute funds, won't they want a fund with better name recognition?

A. Certainly Fidelity and Dreyfus and Federated all have a bigger name than we have. But we've been advising banks on their investments now for 10 years, so a chairman might know us personally better than he would know Federated or Fidelity. Also, there are a lot of banks out there. We don't need all of them, and they don't all need us. …

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