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Bank sales of mutual funds dropped last year from the year before, but recent sales data show signs of better days as sales held steady in the final quarter of 2002 and grew in the first month of 2003, according to data compiled by Kenneth Kehrer Associates, Princeton, N.J.

For 2002 as a whole, the mutual fund slump was most apparent when viewed in terms of bank revenue penetration.

Banks sold $212 of third-party mutual funds last year for each $1 million in deposits, down almost 28% from $295 in 2001, the Kehrer firm found. Third-party funds represented 10% of the typical banks revenue mix from investment services last year, down from 14.4% in 2001.

For proprietary funds, sales per $1 million in deposits fell by about 17%, from $66 to $55, in the same period. Proprietary funds fell in that time to about 2.6% of bank investment revenues, from 3.2%.

“Mutual fund revenue [in banks] has now declined in 13 of the last 16 quarters and is now 12% below the fourth quarter 2001,” says Kenneth Kehrer, head of the research firm.

In contrast to this decline for funds, bank revenues from all investment services rose 3%, from $2,056 per $1 million in deposits to $2,122 between 2001 and 2002.

Kehrer reports a good deal of the latter increase was from less common sources of bank revenues, such as wrap accounts, trading profits and trailer commissions.

In terms of profit penetration, banks investment programs in 2002 were up more than 16%, earning $944 in profits for each $1 million in deposits, compared to $811 in 2001, according to a study by Kehrer for the Bank Insurance and Securities Association, Wayne, Pa.

Part of that increase can be credited to sales of fixed annuities, which rose to 53.6% of the investment mix in banks, from 49% in 2001. Variable annuities share of bank investment income rose slightly for the year.

Looking at the final quarter of 2002, mutual funds represented 12% of total bank broker/dealer revenue in the period, matching the level reached in the previous quarter, according to Kehrers study for BISA.

For the fourth quarter, bank revenue from mutual fund sales fell 5% from the previous quarter, to $232 per million in deposits on an annualized basis, from $243, Kehrer reports.

Late data from Kehrer shows bank sales of long-term mutual funds started the new year with a burst of activity.

Banks and savings institutions sold $2.3 billion in long-term retail mutual funds in branches in January, up from $1.9 billion in December.

Banks increased sales of mutual funds by 21% over December, Kehrer found. By contrast, Investment Company Institute data says sales of mutual funds in all channels rose 15% for the month.

“Bank mutual fund sales in January were the best since October,” notes Lynn Niedermeier, president of Invest Financial Corporation, Lansing, Mich., which sponsors the monthly survey.

Mutual fund sales through banks did better than variable annuities in January. VAs increased only 10% in banks in January, less than half the growth rate of mutual funds.

Data compiled by Kehrer show that overall bank broker activity rose around 7.5% for 2002, to $26,059 per month on average from $24,245 the year before.

Investment sales by registered bankers averaged $2,323 per month, down around 1.6% from $2,360 the year before.

Bank broker/dealer profit margins increased in that period from 32.6% to 35.6%.


Reproduced from National Underwriter Edition, March 31, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.