Touted Mutual Funds Aren't Topping Charts; Bank Reluctance Surprises Alliance Capital Management
Gifford, Leslie A., American Banker
Touted Mutual Funds Aren't Topping Charts
Bank reluctance surprises Alliance Capital Management.
THE WORD IS that many banks, after a year in the mutual funds business, are ready to pull out. While this may be true, there are some institutions willing to give the program a little more time, and others who even have good things to say about their experience to date.
Alliance Capital Management Corporation is cashing in on those institutions willing to stick it out. The asset management arm of Donaldson, Lufkin & Jenrette Inc. (DLJ), a Wall Street securities firm, offers a family of four mutual funds available exclusively through banks.
Called Decision Funds, the family was developed for the Pershing division of DLJ, to meet the special needs of Pershing's bank brokerage clients. The Pershing unit, which executes and clears securities transactions, processes all orders for Decision Funds.
Iris Burkat, vice president of Alliance and creator of the Decision Funds, says the program has been successful, though she admits, "it could be more successful.' Started up in February 1985, the funds have yet to establish a solid track record, but Ms. Burkat is optimistic.
"There's an important segment out there that is just waiting for banks to tell them these things are available to them,' she insists.
Ms. Burkat stresses the need for educating the public about mutual funds.
"They're not sure what they're buying,' she says. "But on the other hand, they have a lot of money.'
Such clients may take their money elsewhere if their bank does not make mutual funds available. Ms. Burkat wonders at the banks' reluctance to do so.
"A year ago I would have thought we would be doing five to ten times the amount of business we are doing,' Ms. Burkat says.
"But you have to remember that the brokerages and mutual fund firms have been out there a long time,' she counters. "They have everything in place, and they don't have a law against them.' She refers to the restrictions placed on the banks by Glass-Steagall, which effectively prohibits them from directly marketing and distributing mutual funds.
She does think the banks will hold on, if for no other reason than to stem the tide of assets flowing out of their Individual Retirement Accounts. Indeed, according to the Investment Company Institute, bank/thrift share of the total IRA market has slipped from 73% in 1982 to 54% in 1985, with brokerage firms and mutual funds taking up the slack.
Banks Must Rise to Rivals
Jon S. Fossel, senior vice president and director of marketing for Alliance, agrees.
"Banks have to awake to the competition,' he says. Right now the banks are the "big losers' in the mutual fund game, and they're "crazy' not to continue their quest for market share.
One bank that has made a commitment to the success of the mutual funds offering is ManuBank, a subsidiary of Manufacturers National Bank of Detroit.
The volume they have handled to date is "a lot more than what we had anticipated,' says Larry Kreul, president of ManuBank.
Mr. Kreul attributes the success of the program to the strong stock market, coupled with a kind of "sticker shock.' People are rolling over their certificates of deposit, seeing they're getting 7 1/2%, and becoming aware of alternatives that would bring higher rates of return.
ManuBank started with the Decision Funds last fall, with the intent of rounding out their self-directed IRA package.
The program is of a defensive nature, according to Mr. Kreul, indicating that though there is not a lot of money to be made, the competition would rush in where the bank feared to tread.
So they shopped around for a fund manager, and decided on Alliance. It had a good reputation, says Mr. Kreul, and also is the subsidiary of Pershing, the company through which ManuBank Already was clearing its discount brokerage services. …