Strong Capital Management of Menomonee Falls, Wis. is reconsidering how to price the new class of shares it had announced it would create to sell through intermediaries.
The $45 billion fund group is now rethinking its plans to offer a separate advisor-directed share class on many of its mutual funds, said Jody Lowe, a Strong spokesperson.
Strong disclosed it has abandoned plans to tack a front-end sales charge on its planned advisor class of shares in a May 19 prospectus amendment filing with the SEC. The advisor class of shares was to be made available on at least 16 of Strong's mutual funds, according to Strong fund prospectus filings made in recent months. The advisor class was to have an undetermined front-end sales charge as well as a 12b-1 distribution fee, according to the filings.
"We're pulling back on that [advisor class of shares] and strategizing as to how we will be pursuing the load market in the future," said Lowe in a telephone interview. "There was not a strong interest in the [front-end] load." Many advisors and brokers like Strong funds, but the company is trying to determine the best way to make these funds available to these channels, she said.
Strong might finally decide to introduce a modified advisor class of shares that would only charge a 12b-1 marketing and distribution fee, Lowe said. That is still being discussed, she said.
Strong currently has 18 multi-class funds and 33 retail funds. Strong never intended to introduce multiple classes of shares across the board. Its four international stock funds and three international bond funds were among those that were not to have multiple share classes. Strong also never intended to add share classes to its Strong Internet Fund and Strong Technology 100 Fund.
Strong is one of several direct-to-consumer mutual fund groups that has, in recent months, made clear its desire to expand its funds' distribution into other markets through the creation of alternate share classes. T. Rowe Price of Baltimore, Md. and, most recently, Janus Capital of Denver, have announced new share classes to cater to intermediaries.
But it can be difficult to enter a previously-untapped channel, said Dennis Galant, an analyst with Cerulli Associates, a mutual fund consulting firm in Boston.
"Entry into this marketplace is extremely difficult," said Galant. The competition is fierce and a few players control a large portion of market share, he said.
"The top 10 providers, wholesaling firms, are consolidating control of the marketplace," he said.
C shares have been used by some no-load fund groups that have sought entry into intermediary channels, said Galant. But some funds have determined that while C shares, or level load shares, may be more attractive to intermediaries than a front-end sales charge, C shares may not effectively preserve assets, Galant said.
Unless there is very strong brand recognition, such as with Janus, or stellar performance, such as with Munder Capital Management's Munder NetNet Fund, it can be tough for funds to command attention from new audiences, Galant said. Strong may actually be putting itself at a disadvantage by not having a substantial up-front commission, he said.
No-load fund advisers must also consider whether adding an advisor class will put their no-load businesses in jeopardy. And, advisers must recognize the soaring costs of finding, hiring, assembling and training a wholesaling team to sell the funds to new audiences, said Galant.