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No-Load Firms Edge into Advisor Channel

An increasing number of no-load fund companies in Canada are embracing a new strategy - 'If you can't beat them, join them.' Adviser-sold funds dominate the Canadian scene and, even though competition is already intense, that is where at least some no-load firms see some of their best prospects for expanding their distribution.

Recent statistics on total mutual-fund assets by manager type, released by the Investment Funds Institute of Canada, tell the story. As of Oct. 31, more than half of assets, 50.8 percent, were managed by firms selling primarily through independent brokers and dealers.

Bank and trust fund complexes, despite their vaunted national branch networks and domination of the discount brokerage channel, were a distant second at 27.1 percent. Independent direct sellers, a powerhouse in the U.S., represent a mere 4.5 percent of the Canadian market.

The number of Canadian direct sellers was further reduced this month, with the loss of Bissett & Associates Investment Management of Calgary. Under the new owner, Franklin Templeton Investments Corp. of Toronto, the formerly no-load Bissett funds have been recast as load funds and combined with the main Franklin Templeton family. As of Dec. 1, the Bissett funds are being sold exclusively through advisors, although existing clients have been grand-fathered.

The growth-style Bissett funds, investing mainly in the Canadian market, are a good strategic fit for Franklin Templeton. They provide a complement to its existing value-style domestic offerings at a time when investors are demanding greater choice, said Don Reed, president of Franklin Templeton.

The takeover deal was also a big boost for the Bissett funds' marketability. Despite the fact that Bissett had received public commendation, including a national analysts' award for fund company of the year, the firm's retail fund assets stood at US$987 million as of Oct. 30.

Executives of Franklin Templeton, which is tenth largest in the Canadian industry with $13.8 billion in assets, are optimistic that the switch in channels will translate into higher sales.

"The advisors have always been extremely important to us as an operation," said Reed. "The direct sales channel is far bigger in the U.S. than it is in Canada."

Another prominent no-load firm, Altamira Investment Services of Toronto, has expanded its reach by agreeing to a distribution arrangement last month with a leading load-fund marketer, Mackenzie Financial of Toronto. Through Mackenzie subsidiary MRS, which sponsors the Keystone family of funds sold through independent brokers and dealers, Altamira and Mackenzie have teamed up to launch a series of eight Altamira-managed funds.

Altamira's investment expertise is respected in the advisor community, and the Keystone Altamira Advisor Series gives advisors another well-known brand name to offer their clients, said Laurie Munro, president of MRS, which is also based in Toronto.

"The Altamira brand name is one of the top five brand names in the Canadian mutual fund industry," said Munro. The arrangement with Altamira helps set Mackenzie apart from its direct competitors in the broker-dealer channel, he said. The Altamira series of funds will be fully exchangeable with more than 100 other mutual funds sponsored by Mackenzie, he said.

For its part, Altamira sees the alliance with Mackenzie as a key element of creating a multi-channel distribution model in Canada. It enables Altamira to tap into an alternative distribution channel without having to build its own distribution platform, said Chris Hodgson, managing director.

"We just see it as a natural extension of our brand," said Hodgson. Altamira remains committed to its core direct-sales business, he said.

In another development, bank-owned TD Asset Management has significantly stepped up its efforts to attract sales from financial advisors. Owned by Toronto-Dominion Bank of Toronto, the previously exclusively no-load firm has launched load-fund versions of 19 of its funds, as well as six other specialty funds exclusively for sale by advisors in November.

The optional-load TD funds pay financial advisors five percent commissions at the time of sales, plus trailer fees of up to 0.5 percent a year for equity funds. On front-end load sales, advisors are allowed to charge commissions of up to five per cent. This is a competitive commission structure in Canada, said Cindy Denwood, a director of TD.

TD, sixth among all Canadian fund firms with $19.4 billion in assets, has also become the first no-load firm to introduce an F-class of fund units exclusively for sale by advisors. These units, which have become increasingly common among independent load-fund firms, have low management and expense ratios and no-commission products. They are designed for use by advisors in fee-based arrangements such as wrap accounts.

In addition, TD has matched many of the same services available to advisors from traditional advisor-sold fund firms. TD now employs wholesalers, maintains a website for financial advisors and a dealers' hotline, publishes a monthly advisors' magazine, and holds dealer road shows.

TD says it has no intention of abandoning direct-to-public sales, and its distribution strategies now cover the full spectrum from low-fee Internet-only fund classes to the new advisor-sold funds. What Altamira's and TD's multi-channel strategies do illustrate is how the once well-defined distinctions in Canada between no-load and load-fund firms are blurring.