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William Blair Will Go Both Load and No-Load


William Blair & Company LLC of Chicago simultaneously will offer its mutual funds both no load and with a sales charge, a rare occurrence in the mutual fund industry.

The firm, which historically has sold its funds without a sales charge, expected to introduce share classes that include front-end, back-end and level-load sales charges on Oct. 1, said Marco Hanig, president of William Blair Mutual Funds, last week. The move is part of a restructuring in which the firm plans to focus attention on generating fund sales through intermediaries, Hanig said. William Blair, which currently has approximately $2.2 billion in six funds and about $12 billion in overall assets under management, wants to provide investors with alternative ways to purchase William Blair funds, Hanig said.

"If we were currently a load complex, I'd be too scared to try it," Hanig said. "We have zero downside."

Indeed, that fear of the downside has discouraged mutual fund companies, especially load companies, from making the leap to offering load and no-load shares simultaneously. Fund executives fear that selling funds at net asset value will discourage intermediaries from selling the same funds with a sales charge. Intermediaries are concerned that once an investor learns that he can buy the fund at net asset value, the investor will abandon the intermediary and buy the fund directly from the fund company.

The concern over that so-called channel conflict between load and no-load distribution is fading, some fund executives and observers say. Financial planners, for example, offer readily available no-load funds - such as those from the Vanguard Group of Malvern, Pa. - while charging an asset management fee and still keep their clients because of the quality of the advice they provide, Hanig said.

"People are willing to pay for advice," Hanig said.

The New England Funds of Boston, in fact, next year plans to introduce new funds which are essentially no-load funds in a New England Funds wrapper, a spokesperson said last week. New England announced plans for the funds in December. (MFMN 12/14/99) And, the Gabelli Funds LLC of Rye, N.Y. is currently asking shareholders to approve the addition of load classes to several of Gabelli's no-load funds. However, the firm said in a recent SEC filing that the funds' directors had not yet committed to offering load shares to the public.

Companies increasingly will offer both no-load and load shares, said Louis Harvey, president of Dalbar of Boston, a financial services research firm. Intermediaries are more concerned about fund performance, marketing and operational support than whether a fund is available to investors at net asset value directly from the fund company, Harvey said.

"The key success factor with intermediaries is whether you support them," Harvey said.

William Blair already is taking steps to increase its support for intermediaries. The firm planned to expand the size of its mutual funds distribution group from four at the beginning of this year to 14 by Dec. 31, Hanig said. William Blair has approximately 750 employees. The firm also plans to introduce three new growth funds and a large-cap blend fund before Dec. 31, Hanig said.

The growth of the Internet as a fund distribution channel will contribute to the demise of the once sacred division between load and no-load firms, said Burton Greenwald, a consultant to mutual fund firms in Philadelphia. Fund firms eventually will sell their products at net asset value, with intermediaries adding charges of their own based on the advice and planning services they provide, Greenwald said.

"Down the road... the sales charge will be a dinosaur," Greenwald said.

In addition to adding fund shares that carry a sales charge, William Blair is asking shareholders in its retail class of no-load funds to approve the addition of a rule 12b-1 charge, according to a preliminary proxy statement filed with the SEC Sept. 24. The fee, usually 0.25 percent, will be used to pay charges which no-transaction-fee programs - commonly known as mutual fund supermarkets - impose, the company said. William Blair currently pays those costs, Hanig said

Some firms pass along the supermarket charge to investors without labeling it explicitly as a distribution expense or by rolling it into administrative costs, William Blair said. That is tantamount to using "hidden fees" to pay for participating in a supermarket, the firm said in the proxy statement. William Blair's decision to ask shareholders to approve a 12b-1 charge to pay for distribution is consistent with SEC pronouncements on disclosing the payment of distribution charges, Hanig said.

"To the extent you're paying for distribution, you're labeling it distribution," Hanig said.