INVESCO's announcement that it will drop the no-load sales model may be the last such move by a major mutual fund company, despite the shrinking volume of direct sales.

With direct sales to investors probably only accounting now for 20% to 25% of mutual fund volume, some companies see the intermediary business as a much better way to get new assets, said Geoff Bobroff, a mutual fund analyst based in Providence, R.I. Also, he said, some fund companies have assumed that selling through intermediaries would be cheaper than direct marketing.

Before INVESCO Funds Group Inc. announced its move, other longtime no-load fund companies like Scudder Investments (soon to be integrated with Deutsche Bank) left the direct-sales business, hoping to attract more customers through advisers.

But several large fund companies retain big no-load businesses, and all say they intend to remain in them. These include Fidelity Investments, Janus, American Century, T. Rowe Price, and Vanguard Group Inc. Vanguard, in Valley Forge, Pa., is the second-largest mutual fund company and also the only major one to work exclusively with no-load products.

Moving into the intermediary-sold arena has pitfalls, Bobroff said. For example, he said, the cost of hiring and maintaining a wholesaling force is tremendous. And new entrants often fail to recognize how crowded the marketplace is with mutual funds, and that most brokers and advisers sell to their clients from only a handful of funds, he said.

A spokeswoman for Fidelity said sales in both the direct and intermediary channels have grown this year and that it plans to stay in the direct market.

Lars Soderberg, director of defined contribution at Janus Distributors Inc. in Denver, said the company remains committed to the direct market, though more of its fund sales every year come through 401(k) programs, wrap programs, and mutual fund supermarkets like that of Charles Schwab & Co.

In 2001, roughly 80% of Janus' sales have come through intermediaries, Soderberg said, but more investors are likely to buy Janus funds directly if the stock market picks up in 2002.

Analysts and fund families agree that there is room in the market for no-load funds, but the question is how much. There is also some confusion on what percentage of fund sales come directly from investors.

Avi Nachmany, director of research at Strategic Insight Inc., said it is difficult to determine what part of all fund sales are made direct to investors, since many funds that do not carry sales loads are also sold through programs like 401(k)'s and mutual fund wraps. Still, he said, it is clear that direct fund sales have fallen far since the early 1990s.

"Even direct companies probably say that most of their business comes from intermediary relationships," Nachmany said.

Lou Harvey, president of the fund industry research firm Dalbar Inc. in Boston, said that every defection from the no-load business leaves more room for the remaining players. "Every time a big company cuts back, there's an opportunity for others," he said.

For at least one company - Vanguard - the commitment to the direct market is rooted in a philosophical belief about serving shareholders, Harvey said. Even if other companies ultimately leave the no-load arena, it is hard to imagine Vanguard ever doing so, he said.

A spokesman for Vanguard said the company remains committed to the direct market and sees "ample opportunities to grow" there. As of Nov. 1 more new money had gone into Vanguard funds - $30.4 billion - than into any other fund family this year, according to the Boston research company Financial Research Corp. The next-closest fund group is American Funds Group, which is advised by Capital Group Cos. in Los Angeles, with $17.6 billion, according to the research company.

And even though a number of fund companies sell both direct and via intermediaries - what Bobroff calls "riding both ponies in the parade" - in some cases that can be risky, said Matthew McGinness, an analyst at Cerulli Associates in Boston. The danger is that the intermediary brokers will refuse to promote or sell a fund that investors can buy without the sales load, he said.

Coincidentally, most no-load funds are growth-oriented, and brokers would have a hard time selling them in the current market, Bobroff said.

Dave Larrabee, senior VP in charge of third-party sales at American Century Investments in Kansas City, Mo., said the company will always retain a direct-sales component, despite the fact that third-party volume now makes up 80% to 90% of its sales.

"The roots of our company are direct sales, and it remains a very profitable part of our company," Larrabee said. "There's still always going to be a piece of the investing public that wants to go direct."

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