No-load mutual fund share classes, particularly those without 12b-1 fees, have become the single most important share class in mutual fund sales through intermediaries, according to a study by Strategic Insight.
No-load shares accounted for 47% of sales in 2010, up from 42% in 2009 and 34% in 2007. The next most popular share class was “A” shares sold at NAV, accounting for 28% of sales through intermediaries in 2010. The third-most popular share was “A” shares sold with a commission, accounting for 14% of fund sales through intermediaries in 2010.
Driving the preference for no-load shares is the growth of fee-based advisory programs that seek out lower-cost share classes. In 2010, no-load shares comprised 60% of total fee-based advisory program shares, up from 41% in 2008.
The report, “The Strategic Insight 2010 Fund Sales Survey: Perspectives on Intermediary Sales by Distribution Channel and Share Class,” is based on a survey of 40 fund companies that distribute primarily through financial advisors. These companies manage $4.4 trillion in assets, representing 56% of the industry’s long-term fund assets.
“Clearly, the movement toward advisers being compensated through fees-for-advice has been an important secular trend impacting fund sales for some time,” said Strategic Insight Senior Analyst Dennis Bowden. “More recently, the growing demand for the lowest-cost share class within fee-based programs has added new dynamics to this trend.”
He continued: “In many cases, this demand has led to traditionally institutional share classes being made available to retail investors and advisers within fee-based programs, For fund firms, meeting the costs of retail distribution with share classes that were originally priced for institutional use can create challenges.”
Avi Nachmany, director of research at Strategic Insight, added that the findings of the study indicate it might not be necessary for “a radical remake of Rule 12b-1.”