LOS ANGELES -- Home Savings of America, the nation's largest thrift, has jumped into the mutual fund business by launching a family of seven proprietary funds.
The new stock, bond, and money market funds, called the Griffin Funds, will be distributed by the $50 billion-asset thrift but managed by two outside companies.
Although some 100 banks manage mutual funds, Los Angeles-based Home Savings, a unit of H.F. Ahmanson & Co., is only the fourth thrift to enter the business. Other thrift companies with proprietary mutual funds are Great Western Financial Corp., Washington Mutual Savings Bank, and Golden West Financial Corp.
Preventing Runoff
The bank decided to launch a fund family to broaden its relationship with customers and curb the possible siphoning of those customers by outside fund companies.
"If we sold only third-party funds, they would directly market to our customer base over time," said Edward McGrath, executive vice president and director of retail services for thrift.
Home Savings discovered that customers would be interested in a bank-sponsored fund family during focus groups over the past several years, Mr. McGrath said.
In the focus groups, customers said the huge selection of mutual funds baffled them. Investing in a product from trusted Home Savings would be preferable, they told the bank.
Retaining Trust
In launching bank funds, however, the bank would risk losing customers' trust, bank officers worried. To limit the risk, the bank decided to enlist help, Mr. McGrath said.
"We had not had a lot of money management experience internally," said Mr. McGrath. "So what we did was we went out and talked to a number of firms."
The company hired Piper Capital Management and Payden & Rygel. The two firms met the standards of being stable money managers with good track records and mutual fund experience, Mr. McGrath said.
Unlike most commercial banks, Home Savings won't have to pay an outside firm to sponsor and distribute its funds. That's because thrifts aren't subject to the Glass-Steagall Act, which prohibits banks from putting up the money to register funds with the Securities and Exchange Commission.
Because the thrift didn't have to hire an outside firm to do distribution duties for the funds, "the numbers work out a lot better than with the typical [bank] program," said William Hawkins, director of Griffin Financial Services, a unit of Home Savings.
Loads on Bond, Equity Funds
The thrift will get about 50 basis points for distributing the funds, Mr. Hawkins said. A 4.5% front-end load will be levied on bond and equity funds while the two money markets have no loads.
About $2 million from Griffin Financial Services went into the funds as need money. Mr. Hawkins expects that the additional fee income from distribution will make the Griffin Funds profitable in a year to 18 months.
The bank is spending about $1 million to market to existing customers and educate employees. In about a year, it may shift efforts toward new customers, Mr. McGrath said.
Track Record
The thrift, with 10 years' experience selling funds, sold about $350 million in outside funds last year and expects to sell more than $500 million this year.
Mr. McGrath said the new funds should account for about one-third of fund sales from now on, Mr. McGrath said.
Griffin Financial Services has 137 representatives serving 375 branches. They now sell the proprietary family in all branches.
Home Savings will add more portfolios to the Griffin Funds in about a year to meet customers' changing needs, Mr. McGrath said.
The fund family takes its name from the griffin, a mythological creature with the head and wings of an eagle and the body of a lion that jealously guarded the wealth of the people.Getting Their Feet WetSome big thrifts move intomutual fundsGreat Western Financial Corp.Beverly Hills, Calif.$2.751 billion under managementWashington Mutual Savings BankSeattle$1.148 billion under managementGolden West Financial Corp.Oakland, Calif.$621 million under managementH.F. Ahmanson & Co.Los Angeles$2 million of seed fundsas of mid-OctoberAssets as of June 30, except as notedSources: Lipper Analytical Services,H.F. Ahmanson & Co.
