NEW YORK - Self-directed benefit plans represent the best long-term growth opportunities for bank mutual funds, according to a study by Deloitte & Touche L.L.P.
A survey by the firm found 53% of bank executives said self-directed benefit plans (representing individual retirement accounts and Keoghs) were the optimal growth sector, while 49% cited retail and private asset management and 38%, the "institutional retail market," i.e. defined contribution plans.
Banks have done a poor job penetrating the mutual fund business, the study said. Banks control only about 14% of the market, with large fund complexes, among other providers, commanding much larger market shares.
Nevertheless, 66% of bank executives said their fund business met or exceeded their expectations and 76% of executives plan to increase their future commitment to mutual fund operations.
Fifty-three percent of the banks surveyed offer proprietary mutual funds and 94% offer third-party funds.
Seventy-two percent of banks said they plan to add third-party funds. The figure is higher among "unsuccessful" banks, those whose mutual fund businesses had not met executives' expectations.
Among successful banks - whose fund businesses met or exceeded expectations - 65% plan to add multiple class shares, 63% plan to form strategic alliances, 54% plan to reduce third-party fund families, 53% plan to add proprietary funds and 36% plan to create master-feeder structures.
The study found 79% of successful banks maintain a strong relationship between bank executives and the money management unit of the bank, compared with only 38% of unsuccessful banks.
In addition, 41% of successful banks outsource technical functions such as fund accounting and shareholder servicing, as compared with 15% of unsuccessful banks.
The "prime" bank customer for funds, as defined by the study, is risk averse and seeks an investment adviser who knows products and understands an investor's goals. This individual tends to be unmarried, without children, between 35 and 44, and employed full time. In contrast, the majority of fund investors in general are married and 37% have children.
The firm also surveyed 750 investors with at least $5,000 in investible assets.
The investor survey revealed that those with between $10,000 and $50,000 keep more than half of their assets in mutual funds but invest only one-tenth of fund assets through banks.
Almost two-thirds of individuals said retirement is their main objective in investing. More than one-fourth bought their fund through a 401(k) account or individual retirement account.
The prime prospect wants investor education, assistance with asset allocation and ongoing help with account management, including computer-based services and the ability to maintain all investments at the institution with consolidated reporting.