Surrendering to a wider industry trend, INVESCO, one of the U.S. mutual fund arms of financial giant AMVESCAP, announced last week that it will discontinue selling its products directly to investors and begin selling primarily through brokers and financial advisers.

In abandoning the direct channel, INVESCO, with about $26 billion in assets under management, joins the ranks of Zurich Scudder and Credit Suisse Asset Management, which also ditched their no-load funds within the last year. Meanwhile, other firms, such as Strong Funds and American Century have gradually added loaded shares to their product offerings in an effort to increase their presence in the intermediary channel.

The companies are responding to investors who have demanded more financial advice--particularly by seeking out advisers--after they were stung by declining markets or became overwhelmed by the increasing complexity of their portfolios.

"The trend for the industry has certainly been toward intermediary distribution," said Whitney Dow, an analyst at Financial Research Corp. "Direct sales have dwindled."

Matt McGinness, an analyst at consulting firm Cerulli Associates, said the number of fund families participating in the intermediary channel has increased from 34 in 1990 to 157 as of the first half of this year. He predicts that INVESCO's move, along with those of Scudder and Credit Suisse, will hasten the entry of other firms into the intermediary sales channel.

"People who are fence -sitting or dragging their feet are going to speed up," he said. "When the core market is shrinking, they really have no choice but to explore some of these other markets."

FRC, meanwhile, expects that, by next year, sales of load funds will outpace those of no-load funds, which are usually sold directly by fund complexes.

So far this year, no-load funds have garnered $26.9 million more in assets than load funds, according to FRC.

Switch Is No Surprise

Dwindling direct sales aside, INVESCO's move is no surprise to observers because the firm had been steadily implementing an intermediary sales strategy for several years. In early 2000, the firm began offering C shares that carry a 100 basis point 12b-1 fee, Dow said. The fees are generally used to compensate intermediaries on an annual or quarterly basis.

Last year INVESCO also began offering K shares, which are geared toward retirement plans and are often sold through intermediaries. The shares carry a 12b-1 fee of 45 basis points.

"If you look at their business model, much of their business is already geared to intermediaries through their variable annuity products and defined-contribution plans," Dow said. "It's just not a true direct model."

Even INVESCO downplayed its move to loads, pointing out that last year 95% of the firm's business came through intermediary channels. Most of the firm's direct sales, which amounted to less than 5% of overall business, came from current clients, said spokeswoman Laura Parsons.

"It's the final phase for a plan that started in 1998," she said of last week's announcement.

The switch comes during a difficult year for INVESCO. The firm's total net new flows plummeted during the past 12 months from $10.5 billion through October 2000 to $225 million through October of this year, according to FRC.

McGinness said the firms that make the move to intermediary sales face stiff competition in a market where advisers and brokers can choose from thousands of funds. What's more, advisers are known to be loyal to a handful of fund families once they've found products they like.

To answer that challenge, Parsons said the firm has been building a base of wholesalers during the past three years. The firm now employs 75, 32 external wholesalers who roam four regional sales zones across the U.S., 29 internal wholesalers and four VPs who oversee the operation.

INVESCO will stop selling its no-load shares to new investors by March 1 of next year. By that date, the firm will have added A and B class shares to 26 of its 34 funds.

INVESCO has not said how much its loads will be, but the C class shares that INVESCO currently offers charge a 1% up-front commission and a 1% trailer fee to advisers.

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