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Mutual funds gaining ground in fee-based channels

The financial climate is right for continued growth of mutual fund distribution through retail brokerage houses and fee-based financial planners. Customers are increasingly willing to pay to obtain the advice of financial advisers and mutual funds are more willing to give up charging loads in order to be able to sell more funds through fee-based channels.

That was the message of a seminar last month at the East Coast regional meeting of the National Investment Company Service Association in Boston.

Currently, 65 to 70 percent of mutual fund assets are sold through financial intermediaries, up considerably in recent years, says Stephen Long, senior vice-president and national sales manager for the Pioneer Funds.

"The barriers of pricing have eroded and it's becoming a customer-driven business as opposed to a product-driven business," said Long. "Baby Boomers want to save more and are more interested in getting good, solid financial advice. And there's a fairly big block of people turning 50 years old."

"With 9,000 or 13,000 funds, when you count 'A' and 'B' shares, people need advice," said Stephen Calmas, the manager of mutual fund research and product development for Tucker Anthony, the retail brokerage firm based in Boston. "We're selling a lot more mutual funds now than we sold 10 years ago."

A growing number of mutual fund companies have been willing to lower or even eliminate up-front charges and this trend is likely to continue, according to several program participants. Among the major fund companies that used to sell only on a direct basis to consumers but are now aggressively pursuing intermediaries are Scudder, T. Rowe Price, Fidelity and Neuberger & Berman. In addition to eliminating loads on some funds, mutual fund companies are stepping up their marketing efforts to financial intermediaries.

"The mutual fund companies don't care how they get their assets. They're going to earn their money by managing the funds anyway whether a load was paid up front or it's included in a wrap account," said Long. "Price doesn't matter. It's what you get for the price. What's the old expression? Price is always an issue in the absence of value. "

The trend is a bonanza for brokerage houses which can add scores of additional mutual funds to their product lists at very little cost. As a result many are willingly incurring new research costs to support their expanded mutual fund businesses, says Calmas.