Kehrer: Bank Fund Sales Flatten In September

Still, that scandal would have had no effect on September sales, since it did not break until late in October, Kehrer points out. He blames most of the recent sales decline on profit-taking by investors who did not believe the recent market revival would continue.

"The good economic news didn't happen until November," he says, referring to improving unemployment and other economic data.

Niedermeier says the recent decline in mutual fund sales in distribution channels such as wire houses and regional securities firms also was interrupted in September. She points to a report from the Investment Company Institute, Washington, which concludes that overall U.S. sales of long-term mutual funds were up 3.4% for the month, after falling in July and August. Overall U.S. mutual fund sales, year-to-date, are still about 3% below the total for the same period last year, ICI says.

In September, mutual funds gained back some of the bank market share they lost to variable annuities over the past year, Kehrer reports.

"Bank customers have been attracted to the extra deposit credits and the safety net features built into the modern VA, which protect against downside risk," he says. "Consequently, bank customers have been buying an increasing portion of their mutual funds inside variable annuities."

Kehrer reports that banks sold $3.75 in mutual funds in August 2002 for every $1 of variable annuities sold. That ratio fell all the way down to $1.29 to $1 in August 2003. In September, the ratio rose to $1.38 to $1.