Oppenheimer Funds of New York has created a new retirement share class, "Class N", that will charge investors an additional 45 basis points to help cover the traditional one percent finder's fee paid to brokers.
The new Class N that Oppenheimer created for the Oppenheimer Main Street Opportunity Fund, as spelled out in a recent SEC filing, is a novel means for a load mutual fund complex to offset the one percent finder's fee, said Geoffrey Bobroff, president of Bobroff Consulting of East Greenwich, R.I.
All load companies will probably be interested in Oppenheimer's new Class N, Bobroff said.
Regardless of whether a defined contribution plan sponsor wants to go through a broker to offer a mutual fund in its 401(k) plan, most mutual fund companies will not allow a plan sponsor to obtain access to its funds directly, Bobroff said.
"A plan sponsor cannot go directly to Fidelity or Putnam,'" Bobroff said. "There's usually a finder's fee, which is usually one percent. The investor doesn't pay for it; it is paid for by the fund company. And in most cases, the one percent does decline based on the dollars invested." Fund companies do not like having to pay this fee because it can represent a lot of money, Bobroff said. And, the fund company must pay the fee up front, he said.
"If the assets don't stay very long, then it is a transaction that may be very expensive," he said.
Oppenheimer's new Class N will attempt to keep money in a 401(k) plan by charging investors a one percent fee on money withdrawn within eight months, Bobroff said. The Class N shares also
charge a 50 basis point 12b-1 fee, which Oppenheimer can use to defray the one percent finder's fee, Bobroff said.
The Class N shares "carry a minimum deferred sales charge (load) of one percent . . . on shares redeemed within 18 months" and have total operating expenses of 0.55 percent, according to Oppenheimer's Sept. 9 filing. The fund was introduced Sept. 25. Through Oct. 7, the fund had lost 6.7 percent and attracted nearly $14 million in assets under mangement, according to Oppenheimer.
This new Class N will "shift the burden onto the investor" and will offer distributors a 12b-1 fee trail of 45 basis points, rather than the usual 25 basis points, Bobroff said.
"Oppenheimer's new N shares are the first attempt at rewriting the standard Class A shares and doing away with the finder's fee," Bobroff said.
Oppenheimer's prospectus does not spell out the differences between its Class A and Class Y shares, which are usually used for retirement plans, and the new Class N. However, the prospectus does indicate that the total operating expenses of Class A shares will be 1.30 percent a year, whereas Class Y will charge 1.05 percent and Class N 1.55 percent. The prospectus also says that Class A shares will charge 12b-1 fees of 25 basis points, while Class Y will not charge any, and Class N will charge 50 basis points.
A spokesperson for Oppenheimer declined to comment on the new Class N shares, citing SEC restrictions during registration periods.