Something that acts a little bit like a mutual fund B share is coming to the world of wrap programs for the first time.

BISYS Fund Services of Columbus, Ohio expects to introduce in January a new wrap fee program that guarantees broker/dealers will be able to receive a front-end fee for investors who open wrap accounts, said James McCoy, senior vice president of BISYS, in an interview last week. The guarantee of a fee up front will help broker/dealers recoup more quickly the sometimes significant expenses of setting up wrap programs, McCoy said.

The BISYS wrap account provides that BISYS will pay broker/dealers commissions immediately for investors who open a wrap account and do not want to pay a three percent sales charge up front. BISYS will pay the broker/dealer the sales charge and then will collect a deferred sales charge from investors for three years, McCoy said. If investors cash out of their account before the three-year mark, they will pay a contingent fee.

Commission arrangements such as that planned for the BISYS wrap account have become a popular option among mutual fund investors in the form of class B shares. The SEC, which previously refused to endorse contingent sales charge arrangements for wrap programs, permitted BISYS to offer the service in an interpretive letter dated Sept. 2. The SEC said in the no-action letter that the contingent sales charge was a fee paid for services which is permitted under federal securities laws as long as it is disclosed. The letter was written by from Evan Geldzahler, SEC senior counsel.

A wrap account essentially is a package of mutual funds which a registered representative and a broker/dealer oversee. Investors put money in the accounts and the registered representative allocates the assets among the funds based on the investor's risk tolerance and investment objectives. Investors also receive services from the registered representative for investing through the wrap accounts.

The cost to broker/dealers of setting up the accounting, administrative and marketing services to support a wrap program can run as high as $100,000, McCoy said. Some broker/dealers have been slow to adopt wrap programs because they usually recoup start-up costs only slowly through annual charges.

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