Fund Sales In Banks Lagged Last Year

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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.