Banks' Fund, Annuity Income Reached $5.4 Billion in 2006

Banks with proprietary mutual fund or annuity assets under management numbered 108, up from 104 in 2005, MWA reports. (Proprietary funds and annuities are manufactured by other financial companies but marketed under the banks' own name.) Total assets under management for banks with propriety products rose 14.6%, from $848.3 billion to $971.9 billion in 2006.

"That is the first year that either the number of banks or amount of assets has increased since MWA began reporting on bank proprietary assets in 2001," says Michael White, president of Michael White Associates.

In 2001, 211 banks held $1.43 trillion in proprietary mutual fund or annuity assets, he notes.

"In 2006, the entire gain in the number of banks with proprietary assets occurred among those with assets less than $1 billion, while banks with assets over $1 billion accounted for $122.3 billion or 99.2% of the gain in proprietary assets," White says.

He believes the decline of more than half of proprietary bank annuities and funds in just 5 years is because in most cases, packaging products under a bank's brand proved more trouble than they were worth.

"I think a lot of banks got out due to a lack of scale, so they did not have enough muscle to make a meaningful amount of money," he says. "They probably found [proprietary products] to be a bit of an activity trap–a lot of time and effort with little return."

Interestingly, most of the growth in proprietary funds and annuities in 2006 was among smaller banks.

The number of institutions with assets of under $1 billion selling proprietary products grew from 52 in 2005 to 62 last year, White reports. Among banks over $1 billion, the number with proprietary funds or annuities actually fell, from 51 to 46. Of those 5, 3 had assets in excess of $10 billion–an indication that scale may have been an issue, White points out.

The survey was sponsored by Symetra Financial, a subsidiary of Symetra Life Insurance Company, Bellevue, Wash.