Safeco Corp. has $3.8 billion under management in mutual funds, although almost none of its sales came through the bank channel.
"Companies that sell mutual funds along with other products are much more likely to have a longer-term relationship with their customers," said Al Close, a senior vice president for Safeco Life and Investments Marketing. "Frankly, I'm greedy. This is a retention story, and I want more than the fixed part of the pie."
"We're not a one-trick-pony company," Close said about the company's overall sales mix. But right now, Safeco is a "one-trick pony" in the bank channel. Safeco's fixed annuity sales through banks rocketed 528% in 2001, to $754 million, although it had just $1.5 million of variable annuity sales.
"We need to leverage what we did in fixed annuities," Close said, adding that registered investment advisers are the biggest distributors of Safeco's mutual funds.
The push into banks is in the embryonic stage. Safeco is still holding internal meetings on how to move forward with mutual funds in the bank channel, Close said. The company's selling points will include wholesalers offering training to bank reps and pushing a range of mutual funds for different types of investors, he said.
"We're striving to have the right mutual funds for growth investors, international investors, and investors interested in long-term value," Close said. "If we can train the bank rep to understand us and the product, I'm confident we can make inroads. We have to start with just a few distribution partners, have success, and go from there."
Safeco is not the first annuity provider or insurance company to turn to the bank market with its mutual funds.
Hartford Life, which started its mutual fund family in 1996, said that in 2001, 15% of its fund sales came through the bank channel. It was also the third-largest annuity provider through banks last year and the biggest variable annuity provider by far. So adding mutual funds rounded out Hartford's product offerings through banks, which include life insurance. Its mutual fund family should reach $16 billion to $17 billion of assets this year, according to David Levenson, a senior vice president and the director of mutual funds for Hartford Life.
Of course, insurers are still small players in mutual funds. Hartford Life sold $634 million of mutual funds through banks in 2001; American Skandia, $266 million; and John Hancock, $143 million, according to a study by Kenneth Kehrer Associates of Princeton, N.J.
By comparison, Putnam had $10.3 billion of sales through banks, and AIM, $5.4 billion, according to the Kehrer Associates study.
Michael Cohen, a vice president at A.M. Best Co., said no insurance company is a top-tier mutual fund player and it would be difficult for any of them to become large providers.
"The implication is, without market share, you don't have scale, and you need scale in the mutual fund business," Cohen said. "To be a niche player isn't worth it."
He said Safeco could have a difficult time aggressively expanding its fund sales through banks.
"They've done a nice job with annuities, and I give them credit for trying this, but there are much larger, established asset management competitors out there," Cohen said. "There are significantly bigger players, and there are too many competitors."