Banks finally will be able to convert their common trust funds into proprietary mutual funds thanks to, of all things, the minimum wage bill.
Banks will be able to convert the funds, which totaled $131 billion as of year-end 1994 (the most recent data available) without their customers incurring a tax bill, according to The SPECTREM Group, a San Francisco consulting firm.
The firm predicts many common trust fund conversions will take place in the coming months. Prior to the bill, banks relied on private letter rulings from the Internal Revenue Service to convert trust funds to mutual funds. The bill makes that step unnecessary.
But conversion will be better for some than others. It will be a boon to the 32 banks controlling 82% of the $131 billion, since each runs more than $1 billion of the common funds and most offer proprietary mutual funds. The 35 banks that hold another 13%, running an average $195 million to $999 million, many of them with proprietary fund families, might not reap as much because they have a smaller asset base around which to spread the higher costs.
The 205 banks holding the remaining 5% of the assets, each of which has less than $195 million, typically do not have proprietary fund families so conversion would mean a departure from the money management business because customers would move into third-party mutual funds.