At the height of the bull market, fund fees were of little consequence to most investors. So shelling out 25 basis points for a fund that was consistently returning 25% a year seemed a small price to pay.

In fact, most investors paid little or no attention to the fees they were paying, but that is changing, industry observers say. As fund performance continues to diminish, investors are becoming much more fee-savvy than in the past. That situation has breathed new life into the 100% no-load fund industry, according to some.

Irving Strauss, president of Strauss Communications and the founder of the now defunct 100% No-Load Mutual Fund Council, says interest in pure no-load funds is on the rise. Strauss attributes much of the renewed interest to the lessons the bear market has taught investors about the impact high fees have on their funds' returns once performance falls off.

But interest in pure no-load funds suffered in recent years due to investors' predilection for a financial professional's advice and guidance, according to Strauss. Investors' migration to advice channels came at the expense of direct-sold funds which included many pure no-loads, he said.

Several pure no-load shops were forced to either add loads, a small 12b-1, or face going out of business. That, in fact, was the 100% No-Load Mutual Fund Council's ultimate undoing, Strauss said. Membership dropped off in the late '90s as firms added fees, losing their status as pure no-loads, he said.

There are several examples of no-load firms that have added fees in order to gain distribution through adviser channels. William Blair & Co. of Chicago added front-end, back-end and level-loads to all of its funds in 1999. The firm, which had historically sold its funds without a sales charge, made the change in order to gain access to intermediary distribution channels (See MFMN, 10/4/99).

One of the more noteworthy switches from no-load to load was Scudder Investments. Long an advocate of the direct, no-load market, Scudder announced almost a year ago that it would add loads to all of its funds with the exception of those offered through an affiliate program with the AARP (See MFMN, 11/13/00). The move was noteworthy because of Scudder's size and market prominence.

Other no-load shops have gradually drifted toward the load side by offering loaded share classes and other means of providing sales commissions to brokers and advisers.

But no-load funds, especially pure-no loads, are gaining in popularity, according to Rochelle Lam, CEO of the Academy of Financial Service Studies and Precision Marketing Partners of Milwaukee.

Investors' preference for buying funds through adviser channels, which at first resulted in outflows for pure no-load funds, is now actually helping increase the products' popularity. Fee-only registered investment advisers only use pure, 100% no-load funds, she said. And that's one of the fastest growing channels in the industry, she said. Those advisers will trade through brokerage supermarkets that offer pure 100% no-loads, she said. "As advice and guidance grows, so too do the flows to pure no-loads," Lam said.

That was what drove San Francisco-based Fremont Funds to dump the 12b-1 on three of its 11 funds last month (See MFMN, 10/15/01). "We realized that our target audience is the fee-only planner," said Allyn Hughes, VP of marketing with the firm.

And poor performance has forced many investors to take a hard look at the fees they are dishing out, said Michelle Smith, managing director of the Mutual Fund Education Alliance, a trade organization for no-load fund groups. "We hear about fees when performance is bad," she said. "Investors are forgiving when performance is roaring. When times are bad and when they see poor performance, they are not."

That discontent, coupled with some good PR, has Strauss considering a reconstitution of the 100% No-Load Fund Council. In a new financial planning book, well-known planner Suze Orman refers readers to a directory the Council published several years ago listing all of the pure no-load funds. That has yielded a steady stream of phone calls to Strauss' office from self-directed investors interested in finding low-cost funds, he said.

Strauss has contacted an attorney about re-launching the Council under a new name, he said. "The wheels are turning. There's enough demonstrable interest out there that the time would be right."

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