In the struggle to obtain and retain assets, some mutual funds are redesigning their fee structures. Several no-load fund complexes are now offering load funds, while a few load funds have lopped off their front-end commission.
Since Merrill Lynch and the rest have moved no-load funds into their lair, it has changed how funds are priced, says Geoff Bobroff, principal of Bobroff Consulting in East Greenwich, R.I., which advises mutual funds on distribution channels. He says the pricing mechanism has been taken out of the hands of the product manufacturer and into the hands of the distributor.
Montgomery Asset Management of San Francisco, a traditional no-load fund group, recently launched a series of three funds aimed at the commission-based market, adding A, B and C shares, with the A shares priced at up to 5%. Liberty Financial, which owns The Colonial family of funds and Stein Roe, is allowing some Stein Roe portfolios to be sold on a commission basis. Some Stein Roe funds come in A, B and C shares, with average 12b-1 fees of 1% and maximum upfront loads of 5.75%.
Gerald Pinkerton, director of marketing at Third Avenue Value Funds in New York, says his fund group went no-load three years ago and has since doubled assets to $1.6 billion. NAV pricing has allowed him to successfully sell into the wrapfee marketplace, he says, plus the fact that brokers are already familiar with the firms portfolio manager, Martin Whitman.
To galn acceptance at the wirehouses, many fund families offer a no-load structure, and once they are through the door, they can begin to wholesale their other [load] products, says Bobroff. The no-load pricing helps set them apart initially.
One problem with no-load pricing, though, is that assets are more susceptible to short-term trading and changes of heart. Tod Parrott, former president of the Pasadena Fund Group, who now runs Rockaway Partners in Rye, N.Y., a mutual fund consulting firm, agrees that retentlon has become more of an issue. Investment managers have realized lots of sales from the no-load side through Schwab and Fidelity, Parrott says. But sales dont really do it if you dont have retention.
The fear of losing assets has caused some no-load mutual fund families to introduce a commission-based option. The only way to be able to tell a client to stay is to have a load product, Bobroff says. Expect to see more trail fees, too, he says. Its a trend well continue to see as the lines between load and no-load blur further.