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Loaded to Go

With Financial Research Corp. predicting that flows in load products will outstrip those of no-load funds by the end of next year, get ready for more fund companies to join the ranks of Zurich Scudder and Credit Suisse, which in the past year switched nearly all of their offerings to load funds.

The demand for advice-driven sales makes the adviser channel, through which load funds are sold, an alluring market, consultants say. And in an effort to bolster their revenue streams, firms, such as Acorn Investment Trust and GE Asset Management, are increasingly converting their funds to load products. Others, such as Strong Funds, have moved more cautiously, offering only a few load products so they can tap the lucrative adviser channel while dangling their sales forces into other markets as well.

Indeed, the trend is closing the gap between the flows of load and no-load funds. In 1999, investors sank $85.1 million more into no-load products than they did load funds. This year that number shrank to $26.9 million. And by next year, said FRC analyst Kristin Adomanis, load flows will likely surpass their no-load counterparts.

Tough Load to Hoe

But consultants and analysts say companies that are considering making the switch are up against some tough challenges. To service the adviser market effectively, companies will have to hire or train an adroit brand of wholesaler who can establish credibility with stalwart intermediaries, consultants say.

And firms must ensure that they have enough product breadth as well as the resources to offer all sorts of additional services to those intermediaries.

"That is a daunting task," said Dennis Gallant, a senior consultant at Cerulli. "If you're not going to stand out in the crowd, you don't have a lot of rapport in the wholesale market."

Executives at Credit Suisse Asset Management, which announced this month that it will switch to load products by Dec. 12, say the firm is well-positioned for the move because it has already built a rapport with reps through a bevy of managed account wholesalers.

"They tend to [have] a higher level of wholesaling knowledge and expertise because of the type of adviser they're dealing with," said Adam Deixel, who oversees Credit Suisse's managed account, and soon load fund, wholesaling force. He says the firm has doubled that group of wholesalers in the past year and a half. Asked about his future plans for the group he said, "I'm not going to put numbers on it in this environment, but it will grow."

In addition, consultants at other firms say companies have to offer reps more than just performance. Such reps "are looking for a long-term relationship," Gallant said, which includes revenue sharing on a consistent basis, training, marketing assistance and breadth of product offerings.