New York — Massachusetts Financial Services Co. (MFS) says that, so far this year, gross sales in its bank trust channel have increased 30% from a year earlier. A company executive says he thinks the Boston investment management company will be able to match that performance in the channel next year, even while it struggles with overall losses.

The mutual fund and separately managed account provider, which does business as MFS Investment Management and is majority owned by Toronto's Sun Life Financial Inc., says its assets under management declined 21% from a year earlier, to $162 billion as of Sept. 30, 2008.

Last month MFS said it had cut 90 jobs, or 5% of its workforce, joining a growing list of mutual fund companies that have been forced to cut staff and expenses as a result of the financial crisis and dwindling assets under management.

The asset management industry has been forced to cut more than 4,000 jobs over the past three months.

Most recently, BlackRock Inc. of New York announced Thursday that it had cut 500 jobs globally. A week earlier Baltimore's Legg Mason Inc. cut nearly 200 jobs and, last month, Fidelity Investments of Boston announced plans to cut nearly 3,000 jobs by early next year.

Michael Fitzgerald, SVP and the director of relationship management in MFS' advisory resources group, says in an interview last week that the job cuts at his company have not affected his group.

MFS has worked hard to keep its "client-facing people intact" as it has been forced to cut certain jobs, including four portfolio managers, he says.

Despite the turmoil and job cuts, MFS has grown in the bank trust channel because it has developed strong, long-term relationships with a wide array of financial services companies, Fitzgerald says.

In the first 11 months of this year, MFS made nearly 15% of its gross mutual fund sales and more than 5% of all its investment product sales through the bank trust channel.

"Many of our competitors have really been in and out of this space, but we really are committed to it," Fitzgerald says. "We are especially interested in developing relationships with institutions where we feel there are opportunities on the 401(k) and personal trust side."

Fitzgerald, who was hired by MFS in 1996, says the company has been developing relationships with bank trust clients since 1997.

MFS' sales through the bank trust channel will continue to increase, he says, as more banking companies move to an open architecture model of offering nonproprietary investment and insurance products to their customers. "This will be a big driver for our business."

Analysts say it will get increasingly difficult for mutual fund companies, including MFS, to increase sales as equity markets continue to fluctuate, banks consolidate and investors alter their strategies.

Burton Greenwald, a Philadelphia analyst with BJ Greenwald Associates, says bank consolidation leaves "fewer institutions and even less shelf space" for fund companies to court.

"It is simple mathematics," he says. "Fund companies are going to have to continue to cut costs as assets under management dwindle, revenues fall, and everyone is forced to pay attention to the bottom line."

Nevertheless, Fitzgerald says that since MFS has relationships with so many banking companies, he is confident it will be able to withstand consolidation and deliver strong sales through the channel. It has eight relationship managers, who each work with 10 to 16 banking companies.

"I expect that there will be a lot of turf battles at bank trust companies, but we really have established strong relationships with all of these firms," he says. "We have relationships with Merrill and Bank of America. We have relationships with Wells and Wachovia."

MFS has been able to develop relationships because it has kept its performance relatively strong, despite difficult economic conditions, Fitzgerald says.

"Our conservative, risk-averse approach is very much in line with what banks look for," he says. "Our funds are delivering strong returns in a difficult market cycle."

Fitzgerald expects sales volume to remain robust next year. There will be a "lot of money in motion, because markets have turned sour, and a number of competitors have stumbled."

This could create a wealth of new opportunities for MFS, which primarily offers mutual funds to banking companies but has been added as a manager on several unified managed account platforms, including Bank of America’s, he says.

"We have seen it already as money is moving, and we have been the beneficiary already, and we expect that that will continue," Fitzgerald says. "Market conditions are creating a reason for firms to make changes. These conditions have given them all the reason they need to do something."

In addition, "we know these firms so well," he says. "We know who else is on their platform, who is struggling and how we can fit on their shelf. We believe we are in a good position to do that."

Source: American Banker

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