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Liberty Creates Share Class for the Wealthy


Liberty Financial of Boston is spelling opportunity with a capital "Z."

In a move to give wealthy private-banking clients access to a fuller stable of mutual funds without requiring a minimum investment from them, Liberty is broadening the eligibility for the Z share class on its funds.

Liberty's updated Z shares will allow private banking clients of its parent company, Fleet Bank of Boston, to invest in a new Z share class for 22 of its funds without a minimum initial investment or a load. However, investors must meet certain "wealth management criteria," namely, that they have $1 million to invest, said Charles Salmans, a Liberty spokesman.

"This is really the further integration of Fleet's Private Client Group," Salmans said. "We are expanding the product set to private clients who already pay us an asset management fee."

Fleet's typical high-net-worth client has between $1 million and $5 million with Fleet, but many have quite a bit more, Salmans said. Overall, Fleet manages $50 billion in assets within its Private Client Group and is the nation's fifth largest private bank.

While many of Liberty's mutual funds already carry a broad enough definition for their quasi-institutional share class to encompass Fleet's wealthy investors, the new Z share class brings more of the funds in line, Salmans said.

The 13-fund Columbia Funds group, managed by Columbia Management of Portland, Oregon, an investment management subsidiary of Fleet, will offer a similar type of new share class to appeal to wealthy bank clients in September, Salmans said. The Columbia funds have a collective $7.8 billion under management.

Fleet's main proprietary fund family, the $33 billion, 30-fund Galaxy Funds, already make a separate "Trust" share class available to high-net-worth individuals, according to Salmans.

A Broader Mandate

The initiative to make the Liberty funds available to a broader and wealthier audience is right in line with the mandate Liberty was given after its acquisition by Fleet last November, Salmans said. Fleet's full lineup of mutual funds now includes Colonial Management Associates, Crabbe Huson, Liberty Wanger Asset Management, Newport Fund Management and Stein Roe & Farnham, as well as several proprietary funds managed by Liberty.

In February, Fleet announced that it was changing the umbrella name for its entire asset management division to Columbia Management Group, although individual funds would retain their Liberty label. Under the new Columbia name, company CEO Keith Banks announced that the firm was set to "further develop investment services for high-net-worth individuals, and expand the sale of [its] mutual funds."

Banks, the former chief investment officer of Fleet Management, became the firm's CEO after Fleet acquired Liberty.

Liberty has offered Z shares to investors in the five Liberty Acorn Funds since September of 2000, when it assumed control of the funds through its acquisition of Wanger Asset Management of New York. Liberty offered the Z shares as a way to grandfather existing no-load Acorn fund shareholders into its fund family. The funds subsequently adopted multiple share classes with a sales load in October 2000.

But Liberty then adopted the Acorn no-load Z shares to accommodate others, including Liberty and Acorn employees and family members. In addition, the Z shares can apply to clients of registered investment advisers who pay an asset-based fee, retirement plans with $5 million or more and insurance companies and banks buying shares for their own accounts.

In general, Liberty isn't afraid to stir up the alphabet soup when it comes to variations of share class themes. The Liberty Newport Japan Opportunities Fund offers standard share classes as well as the unusual yen-denominated J and N share classes that are exclusively for purchase by Japanese investors.

It is quite common for banks to offer a special share class on retail mutual funds that can accommodate institutional clients such as pensions and endowments, as well as high-net-worth investors. Bank One of Columbus, Ohio, offers an institutional I share class on its One Group of Funds to its wealthy banking clients who are already paying an overall asset management fee, said spokeswoman Julie Crothers.

Having a separate fund group that caters solely to affluent clients is an approach Mellon Bank of Pittsburgh has used. In October of 2000, Mellon converted its common trust funds into a distinct complex of 13 mutual funds held under the Mellon Private Asset Management banner. The conversion was done to offer clients more investment flexibility and regular shareholder reports, as required for mutual funds but not for common trusts, said Gregg Stein, a Mellon spokesman.

Mellon chose not to create a separate share class of its Dreyfus Funds that would cater to wealthy Mellon Bank clients, Stein said. Because Dreyfus is known as Mellon's retail brand, it is not a brand Mellon wants its wealthy clients to embrace, Stein said.

About $7.8 billion was originally converted into the Mellon Private Asset Management funds. The funds currently have $7.5 billion in assets, representing about one-tenth of Mellon's total $70 billion in high-net-worth assets under management. "Mellon doesn't really promote or market its funds," Stein said. Instead, Mellon directs most affluent clients into separately managed accounts, he added.