BUENOS AIRES - A pilot project by Citibank to sell mutual funds through the sales force of its Siembra AFJP has raised already-high expectations about the booming Argentine mutual fund industry while triggering some worries about the long-term integrity of the pension fund system.
Doing business in a country where home banking and sending checks in the mail are concepts as challenging to the local psyche as zero inflation, Argentina's expanding financial institutions know they must put products in the public's face and then be there to collect the money. And so, while they continue to open branches across the country, they see the 20,000 registered AFJP sales agents as easily co-optable weapons early on in the distribution war.
The 19 Argentine pension funds, known as AFJPs, control more than $8 billion in assets and are taking in $3.5 billion a year in contributions. Sales activity now consists primarily of getting those individuals already enrolled to switch over to a competitor, which has kept marketing and administration costs of the funds high.
Thus, the shareholders of the country's top pension funds (for the most part banks and to a lesser extent financial-services and insurance companies) have sought to leverage the costs of maintaining sales forces of about 2,000 each by allowing the sales agents to accept employment from third parties and offer their products.
The Superintendencia de Administradoras de Fondos de Jubilaciones y Pensiones, also concerned by high costs being passed on to participants, (the annual administration fee runs from 2.6% to 3.7% of the employee's salary), made this cross-selling possible in 1996 when it relaxed regulations limiting sales force activities. Since then, AFJP shareholders have been busy with plans to have the sales force market other products belonging to the ownership group.
For example, Ormgenes AFJP, a unit of the public Banco de la Provincia de Buenos Aires and the local operation of Spain-based Banco Santander, plans to sell mortgages offered by the banks; Maxima AFJP, controlled by HSBC, DeutscheBank, Banco de Nova Scotia and New York Life, is studying the sale of home mortgage loans, health insurance and credit cards through its sales network.
The superintendencia has maintained its position that the AFJP itself may not create or benefit from the sales of other products, and that mutual funds, credit cards and other financial products sold by the agents must not bear the name of the AFJP. In addition, management officials of the AFJP continue to be barred from having duties with outside companies.
In an interview last month, the general manager of the superintendencia, Ignacio Kruguer, said the activities of the sales agents will be monitored closely in the early phases of multiple-product selling. What is feared most, he said, is the use of special offers on tertiary products in order to induce a transfer from one pension fund to another, which is strictly prohibited but does occur. During the initial selling period of the pension funds in 1994, for example, stories abounded of approvals of bank loans hinging on the applicants' affiliation with that bank's AFJP.
Another worry of the regulatory body - one shared by general managers of the pension funds - is that agents with a briefcase full of other products will lose their focus.
"We mustn't forget that our core business is the pension fund, and we are going to maintain our focus on that product," said Ricardo Guitart, general manager of Siembra AFJP. Two other concerns of AFJP of
ficials are that the sale of annuities or mutual funds is too difficult for the sales agents, who undergo only a brief training period. The AFJPs could face fiduciary risks and potential liabilities from the sale of these voluntary investment products.
The three-month Citibank trial period ending at the end of the year, will use 100 Siembra AFJP agents selling just three Citibank fixed-income funds.
During the pilot program, officials will analyze sales approaches, customer profiling and the ability of everyone involved to maintain their focus on pension funds. According to Alejandro Etchegorri, president of Citicorp Inversora SA, Citibank's Argentine fund management unit, a full-blown sales effort would see all 2,000 Siembra sales agents selling all of the company's mutual funds. As of the end of September, Citibank was managing $360 million in six local Argentine mutual funs sold in bank branches and through its 60 dedicated agents.
Plans are to roll out several new funds in the coming months, while the addition of the Siembra sales force could provide a strong boost in market share from Citibank's current level of 6.3%, which translates to fourth place in the country, according to Latin Fund Management, a newsletter covering mutual funds and pension funds.
Argentina's mutual fund industry has blossomed during the year, exceeding all expectations in terms of assets under management. Assets rose to $5.7 billion at the end of September from $1.87 billion at year-end 1996 - an average monthly growth rate of $420 million.
Projections, which have historically been conservative, call for assets to reach $20 billion by 2000, primarily by means of sales through traditional sales channels, i.e. bank branches.
With the help of pension fund sales agents in the selling process, this target may be easily exceedable.
