IDS Funds Change Name, Raise Fees
March 15, 1999
The IDS Mutual Fund Group, the proprietary mutual funds of American Express Financial Corporation, wants to change its name and increase some fees it charges investors.
American Express plans to change the name of the IDS Funds to the American Express Funds and will use the abbreviation AXP to replace IDS for the funds in newspaper listings. The firm also wants to add Rule 12b-1 fees to the funds' Class A shares and raise 12b-1 fees for its Class B shares, moves which will generate added trailing commissions for the American Express financial advisors who sell the funds.
In addition, American Express has proposed increasing fund management fees in some instances and adding fee incentives and penalties based on performance for funds which do not have them now.
The proposed changes are outlined in a preliminary proxy statement which American Express filed with the SEC on March 5. Shareholders are scheduled to vote on the proposals at a meeting June 16.
IDS products, which include 37 retail mutual funds and nine variable annuity funds, are sold only through American Express' proprietary sales force of approximately 9,200 advisors and through retirement plans.
The mutual funds had approximately $87.2 billion in assets under management as of Jan. 29. American Express variable annuities had nearly $30 billion in assets under management as of the same date. The IDS funds are based in Minneapolis.
David Kanihan, a spokesperson for American Express, said changes in 12b-1 fees were intended to pay advisors for continuing service they provide investors. The fees will be used for other marketing expenses besides paying trailing commissions, according to the proxy statement.
The changes call for adding a .25 percent fee for Class A shares. That charge will replace a current service charge of .175 percent. For Class B shares, the increase is from .925 to 1.0 percent. A charge of .125 percent will be added to the annuity funds, which currently have no 12b-1 or service fees.
The 12b-1 fees also can help American Express sell its funds through intermediaries other than the company's own advisors and retirement plans, according to the proxy statement. The proxy statement offered no details about other distribution arrangements. Kanihan said there are no plans to broaden the funds' distribution outside the American Express proprietary sales force, although the firm regularly examines distribution alternatives.
American Express has some potentially popular products if it decides to sell its funds through other intermediaries. Its New Dimensions, Growth and Blue Chip funds all are highly rated by Morningstar. Other long-time proprietary fund groups, such as Prudential Investments, have begun offering their funds through fund supermarkets to registered investment advisors.
But, the American Express captive sales force has served the fund group well, according to Financial Research Corp., a fund tracking firm in Boston. The IDS funds had net sales last year of $3.5 billion, the 17th highest in the industry.
Financial Research said the sales figures are impressive.
"Among national brokerages, none delivers more consistent and substantial inflows for its propriety fund line-up than AmEx," Financial Research said in a year-end 1998 report.