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Low-Fee Class Added to Attract Wealthy


TORONTO - Mackenzie Financial, the largest Canadian fund company selling through independent brokers and dealers, has launched a low-fee class of units aimed at stemming defections by its richest customers.

The new class, which received final regulatory approval in late October, is restricted to accounts of at least $500,000 (all amounts reported in Canadian dollars). It carries sharply reduced management expense ratios that are close to a full percentage point lower than the management expense ratios on Mackenzie's regular retail funds.

"There's a growing focus on the high net worth client," said James Fraser, a senior vice president of marketing at Mackenzie, of Toronto, which with $28.1 billion in mutual fund assets under management in Canada, is the country's third largest fund complex. The concept of volume discounts makes sense for mutual funds because of the economies of scale associated with large accounts, he said.

There is much more behind Mackenzie's initiative than low fees. The load-fund company sought to structure a program that was appealing to its third-party salespeople. The new funds are the key components of a new private trust portfolio service that is intended to compete with both investment counselors and brokerage-sponsored wrap programs.

Among other benefits, the $500,000-plus clients get more individually-tailored services. For example, they receive advice from Garmaise Investment Technologies of Toronto, an asset allocation advisor hired by Mackenzie, on crafting a customized portfolio. By contrast, mainstream Mackenzie clients have access to a limited number of off-the-rack portfolios offered through Mackenzie's STAR asset allocation program.

Fees and performance are always important, but wealthier clients also have a greater need for advice and service in areas such as tax and estate planning, said Fraser.

"The cookie-cutter approach isn't going to work," he said.

Trimark Investment Management, the fourth largest investment adviser in the industry, has for many years offered fee rebates to investors who hold at least $500,000 in its front-end funds. But it is now looking at offering something more comprehensive.

"We're in the process of evaluating the high-net-worth marketplace and how we will be positioning ourselves going forward," said Brad Badeau, president of Trimark of Toronto. "You will see more targeting of the high-net-worth client in the future."

Colin Deane, a consultant with Ernst & Young in Toronto who has studied the high-net-worth market, said mutual fund companies must take steps to address the needs of their wealthiest customers, or risk losing them to other segments of the financial services market.

"If you can't provide the level of service and support that your clients want, they'll find someone else who can," he said.

Deane, who is author of an analysis of the high-net-worth market released in late 1997, found that the largest proportion of investable financial assets is held by the wealthy. Of the $1.45 trillion in these assets held at the end of 1998, nearly two thirds were in the hands of people with holdings of more than $500,000, said Deane.

"It's an attractive enough market that everyone wants to share in it," said Deane. Furthermore, the high-net-worth segment is growing at a faster rate than the market as a whole, "and there's no reason that's not likely to continue," he said.

Half a million dollars is the most widely accepted threshold in Canada for defining the high-net-worth market. For example, it is the minimum investment required at AGF Private Investment Management, a unit of AGF Management of Toronto, one of the country's oldest and largest independent fund companies. The unit, to manage the assets of AGF Management's most affluent customers, was established in the summer of 1998. The portfolios of each customer are managed separately and the managers are given discretion to manage the account without having to clear every trade with the customer.

AGF Harmony, a wrap program that uses pooled funds, is aimed at people with accounts of between $70,000 and $500,000.

AGF's core business remains its retail mutual funds, with assets of $17.6 billion, and ranking eighth in the industry. But Blake Goldring, AGF's president and chief operating officer, expects the high-net-worth segment to become an increasing proportion of AGF's total business.

Another mutual fund manager, direct seller Altamira Investment Services of Toronto, has adopted a more inclusive approach to the higher net-worth segment. In April, Altamira dropped the minimum account size for its upscale private client services to $100,000, down from $350,000.

The private client unit still relies on Altamira mutual funds to build portfolios, but offers numerous advisory extras. These include a written investment policy statement, portfolio monitoring and re-balancing, and annual portfolio reviews.

At the $100,000 threshold, clients start to want more advice and service, said Chris Hodgson, managing director of Altamira.

"If we didn't provide it, they would go where they would find it," he said.