Insurance, credit-card firms tap the mutual fund market

By , Special to The Christian Science Monitor

Item: In Ohio, Pennsylvania, Texas, and upper New York State people who have recently received the proceeds of a Prudential insurance policy may expect a call from their Pru insurance agent, suggesting the funds be parked, at least temporarily, in one of the eight mutual funds that will be offered by the giant insurance firm starting in April. The mutual funds, established with the help of Bache Halsey Stuart Shields, will be expanded gradually into other states.

Item: People dealing with the 30,000 stockbrokers who sell mutual funds managed by Massachusetts Financial Services (including brokers from Merrill Lynch, Paine Webber, and Baltimore-based Alex Brown & Co.) will soon find their brokers offering universal life and variable annuity insurance policies. They have been developed jointly by Sun Life of Canada and MFS. The two companies expect to tie the merger knot in May.

Item: Next month the 9.5 million holders of the American Express green card will find among the sundry mail-order pitches they normally receive with their billing a column about investing. It will be a monthly feature contributed to Amex's newsletter by Shearson Loeb Rhoades, American Express's year-old partner in the financial supermarket game.

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Item: Before the tax man cometh in April, 40 million or so Sears credit card customers and former customers will probably receive a mail-order pitch to establish individual retirement accounts through Dean Witter Reynolds, one of the two financial institutions Sears recently acquired. The other, Coldwell Banker, is a major real estate operator.

But appealing to the diverse emotions that cause people to buy insurance and buy investment products is not a simple process. The newly formed financial services giants are not approaching the problem lightly. Each plans a different market strategy.

''The transition will not be easy,'' predicts Martin Vogt, vice-president in charge of investment products at the Prudential Insurance Company of America, which insures some 35 million individuals. ''It is not an easy transition for an insurance agent to sell an equity type of investment. That is why we are getting into the mutual funds business first. With some of our new funds, you really need an agent to explain them. I defy you to read the prospectus.''

Besides three money market funds, the Pru will offer a stock fund, an income fund, an options fund, a tax-free income fund and a tax-managed utilities fund. Mr. Vogt refers to the last as an ''Alice in Wonderland type of arrangement'' where buyers get no income but get practically tax-free benefits when they sell their shares.

Mr. Vogt maintains that the cross-marketing move will be ''an evolutionary process, not a revolutionary one. I think the process will take more time than we estimated.'' As of now, only 8,000 of Pru's 28,000 agency force are trained to security dealer specification. Another 4,000, he says, have already volunteered to take the 40 or 50 hours of training necessary. But the Bache account executives, who already are marketing some of these funds, will not be in the vanguard of this cross-marketing effort.

Massachusetts Financial Services is taking the opposite tack. It will begin selling insurance through the 30,000 broker dealers who market its 12 mutual funds. MFS manages some $5 billion in its corporate and institutional accounts and mutual funds, says MFS president and managing partner Richard B. Bailey: ''The traditional insurance agent for years and years was selling ordinary life insurance and saying, 'Look out for those nasty equities because they go up and down. Look out for bonds because they go down too. What you really want is something that is guaranteed so your family will be taken care of in case of catastrophe.' Suddenly they are selling variable annuities that are based on stocks and bonds. It is difficult to make that 180-degree switch.''

However, since MFS agents have been selling stocks and bonds for years, and have sold mutual funds employing those same instruments, selling the new universal life and variable annuities devised by Sun Life and MFS should not be too difficult.

And says Mr. Bailey, the irreconcilability of the two areas, life insurance and investment, may no longer be as severe a problem as it once was. ''Don't forget,'' he explained, ''a variable annuity is really not tied to mortality. Although it has a death clause, a variable annuity is really there to provide you with income after you retire. So the emphasis is taken away from death and is put on the fear that when you retire, you won't have enough to live on because of inflation.''The US market is a vast opportunity for Sun Life, the largest insurer in Canada which has a mere 800 or so agents here. So the US market thrust will be the first emerging from the Sun Life-MFS merger. Bailey believes MFS's large distribution capability should serve Sun well. And eventually Sun's marketing capability in Canada, the United Kingdom, and the Far East will market MFS's funds.The Pru is placing similar emphasis on its distribution capability. Explains Mr. Vogt: ''Our agents deliver the checks. We know when a person gets the largest sum he may ever receive in a lifetime. You must remember that the average equities account executive only talks to his customer on the telephone. But a life insurance agent puts his feet under the kitchen table and gets to know his customer.''Talking to Hardwick (Wick) Simmons , senior vice-president in charge of marketing at Shearson, one could conclude that Shearson's customers don't even have kitchen tables let alone sit at them. Shearson's/Amex's very orderly segmentation of their potential joint market shows an inclination to the corporate client as much as the individual. They may sell IRA payroll deduction plans, or management of pension funds or corporate cash flows. Besides Shearson's very ''upscale'' individual accounts (Simmons said the average income is over $50,000 aside from assets), Shearson/Amex is going after an array of clients including Shearson's corporate clients in the merger and acquisition field; its clients in the investment banking area; American Express's credit card accounts - restaurants, inns, and retailers who accept the green and gold cards; the corporate clients of the American Express Firemen's Fund casualty insurance subsidiary; institutions and pension funds with portfolios managed by the Boston Fund, a Shearson subsidiary; and lastly the generally well-heeled American Express green and gold cardholders.In the first leg of its cross-marketing campaign, Shearson/Amex intends to pitch a Financial Management Account tying the American Express gold card to the Shearson client. ''The FMA is a very sophisticated cash management system,'' Mr. Simmons says, which will enable the gold cardholder to switch accounts at Shearson from money markets to securities and borrow on their funds with the use of the gold card. After the initial approach to Shearson customers, the company intends to urge American Express's green cardholders to upgrade their $35 card to the $50 gold card and set up a Shearson FMA.The introduction should occur within the next few months. Some time after the initial debut, the account will be marketed to the public at large.Mr. Simmons said that the typical American Express cardholder will be fairly receptive to Shearson's attempt to capture his investment business. ''If you have a relationship and have had one for years, you are going to be a lot more predisposed to take the service. American Express has devoted its existence so far to the consumption side of the individual customer. It has already ingrained a payment schedule for its cards. Now they can use the same system to get this to his desk.''Simultaneously the firm is in the process of marketing Shearson's payroll deduction IRA accounts to all the Shearson corporate clients and American Express corporate clients previously listed.Naturally, the Shearson/Amex plan diverges from the other financial supermarkets since there is no major thrust in insurance sales to individuals. Comments Mr. Simmons: ''One of the fascinating things about this combination is that there is only one sales force - Shearson's. American Express has a very sophisticated direct mail capacity through which we can reach for the consumer directly and gradually turn him into an investor.''As for the Sears-Dean Witter combination, the other giant with the huge direct mail capability, few cross-marketing strategies have been formally announced. In addition to IRA mailings, more will come. Says Matthew Levitan, director of financial planning services for Dean Witter: ''We sell real estate tax shelters which we get from independents. There may eventually be some tie-in with Coldwell Banker. And there will be some tie-ins with Allstate.Many consumers will probably learn about it soon enough in the mail.

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