State Farm Builds Mutual Fund Business
August 7, 2000
State Farm Mutual Automobile Insurance Company of Bloomington, Minn. has filed with the SEC to offer ten mutual funds to the public.
Until now, State Farm has only offered four funds to its own employees. These funds have been available since 1968. The insurance giant is hoping to introduce the funds in four states - North Carolina, Virginia, Missouri and Kansas by January and gradually introduce them to the rest of the country in 2001, said Dick Luedke, a spokesperson for the firm.
State Farm will probably support the introduction of the funds with an advertising campaign, either in local markets or nationwide, Luedke said.
State Farm realizes that the mutual fund industry is already crowded, Luedke said. However, the company decided to offer these funds primarily for its existing customers, who have been asking for State Farm mutual funds for years, Luedke said.
"We simply wanted to better respond to customers' financial needs," he said. "They want to rely on their State Farm agent, who is very familiar to them, for a variety of products. They like the one-stop shopping."
Luedke declined to estimate how many customers State Farm has, but said that it provides insurance policies to 26.1 million households in the U.S. and is the nation's largest property/casualty insurer. State Farm is the country's fifth largest life insurance company and the 13th-largest provider of individual health insurance policies, Luedke said. These products are sold by 16,000 State Farm agents throughout the U.S., he said.
This is a tremendous base from which to begin selling its new funds, Luedke said. And, State Farm is using its marketing slogan, "Like a Good Neighbor" to expand on that base, he said.
"Insurance agents have not traditionally been that successful at selling mutual funds," said Dennis Dolego, director of research at The Optima Group in Fairfield, Conn. "But as the demarcation between brokers, financial planners and insurance agents is blurring and as more financial service companies turn themselves into supermarkets, it may be high time for insurance agents to step up to the plate" with fund offerings.
State Farm first branched out from its core insurance business in 1998 to offer variable products and online banking, Luedke said. Adding mutual funds to the product line is the next logical extension, Luedke said.
State Farm's variable products and banking businesses have been doing well. The company took in $239 million in variable annuity premiums in 1999 and managed $250 million in banking assets as of June 30, Luedke said. State Farm's four internal mutual funds have $3.5 billion in assets under management, according to Morningstar of Chicago.
State Farm will sell the new funds with a three percent sales load, according to State Farm's July 21 SEC filing for the funds. The company has not yet determined management fees for the funds, according to the filing.
State Farm's newly-formed State Farm Mutual Trust will be the investment adviser to five of the funds - the State Farm Large Cap Equities Fund, the State Farm Equity and Bond Fund, the State Farm Bond Fund, the State Farm Tax-Advantaged Bond Fund and the State Farm Money Market Fund.
Barclays Global Investors of San Francisco will manage the three index funds in the series - the State Farm Index 500 Fund, the State Farm Small Cap Index Fund and the State Farm International Index Fund.
Capital Guardian Trust Co. of Los Angeles will manage the State Farm Small Cap Equities Fund and the State Farm International Equities Fund.