WealthManagement Magazine

Several Major Fund Companies End NAV Transfer Programs

Several prominent mutual fund companies have revoked their NAV transfer privileges in recent months, knuckling under to brokerage pressure, despite the risk of alienating customers and some reps.Van Kampen American Capital, Morgan Stanley, Federated, Lord Abbett and MFS are among the organizations that have closed the door on NAV transfers this year. But virtually all fund groups with such policies

Several prominent mutual fund companies have revoked their NAV transfer privileges in recent months, knuckling under to brokerage pressure, despite the risk of alienating customers and some reps.

Van Kampen American Capital, Morgan Stanley, Federated, Lord Abbett and MFS are among the organizations that have closed the door on NAV transfers this year. But virtually all fund groups with such policies are thinking about revoking them, says Tom Miltenberger, a general principal at Edward Jones in St. Louis who's responsible for mutual fund marketing.

NAV transfers enable brokers to switch client dollars from one load-fund group to another at net asset value, thereby avoiding an additional round of sales charges. Such transfers have proved popular with investors and allowed brokers and recipient fund groups to build goodwill and assets.

"It takes a lot of ethics to offer NAV transfers, but you'd be a fool not to offer them to your clients since such provisions are spelled out in the prospectus," says Gary Battenberg, a Royal Alliance managing executive in Kingwood, Texas. Brokers assisting with such switches typically earn a modest trailer of 25 to 45 basis points, he says.

Compliance headaches seem to be the driving force working against NAV transfers.

"This change comes in response to requests from a number of dealer firms, as well as our recognition that the advice and support provided to our shareholders is worthy of compensation," reads a letter mailed to brokers by Van Kampen American Capital, which discontinued its program in August.

"It's very complicated to figure out which customers should be offered an NAV transfer and which shouldn't be," Miltenberger says. Presumably, a firm could be expected to offer an NAV transfer even to an investor who paid a commission decades ago. "It presents problems of tracking the money and deciding what's fair to the broker and what's fair to the customer," he says. "It presents some squirrelly things to worry about from a compliance standpoint."

Since NAV transfers represent a relatively small portion of the business at fund companies that offer such privileges--and many don't, at least officially--brokerage compliance complaints appear to be tipping the scale.

Skeptics like Battenberg think mutual fund wrap programs also might be involved. Widespread availability of NAV transfers could undermine a key reason an investor would want to open a wrap account and pay the attendant fees.

Battenberg, for one, doesn't like the new landscape. "All of these customers already have paid loads," Battenberg says. "NAV transfers are the right thing to do for the little guy, the customer."

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