AmEx to end fines that posed conflict

The cost of offering objective financial advice is about to go down for advisers working for American Express Financial Advisors Inc.

The Minneapolis-based financial services unit of American Express Co. is expected to announce this week that it is doing away with the $1,000 fine representatives face when they move a client out of AmEx mutual funds and into the company’s mutual fund wrap program.

InvestmentNews broke the story last month that AmEx was fining its advisers as part of an effort to channel assets into its proprietary investment products. Critics claimed that the policy posed a conflict of interest that could compromise an adviser’s objectivity.

The fine, which doesn’t apply when non-proprietary funds are sold, is levied when the AmEx funds are held for less than three years.

The change is part of a revision of AmEx’s controversial practice of providing its representatives with financial incentives to sell proprietary products over non-proprietary products.

cap on wraps

What won’t change is a policy that caps the total wrap fee an adviser can charge at one quarter of 1%, as opposed to a full 1%, if funds are sold into a wrap within the designated period. But that period is being shortened to 18 months, and the policy will apply to all fund groups.

According to Marie Davis, a company spokeswoman, the original “exit/purchase” policy was designed to include all funds, but the company “did not have the systems in place to track non-proprietary funds. So it ended up applying to only proprietary funds.”

The company also is going to let outside fund companies pick up ticket charges that reps have to pay when they buy any non-AmEx funds for their clients.

The ticket charges range from $15 to $85, depending on the arrangement AmEx has with the outside fund company. American Express says the charges cover the administrative costs of bringing non-proprietary investments onto the AmEx platform.

According to an internal e-mail memo obtained by InvestmentNews, two fund companies, Strong Capital Management Inc. of Menomonee Falls, Wis., and Credit Suisse Asset Management of New York, have agreed to absorb ticket charges.

“We hope other companies will also come forward” and agree to pay the charges, says Ms. Davis.

American Express has levied ticket charges since August 2000.

The changes, Ms. Davis says, are a result of a review of rep compensation policies. The goal of the review, Ms. Davis said last month, was to evaluate compensation structures that might give the perception of a conflict of interest.

James Harkin, a Tucson, Ariz., adviser with $40 million in assets under supervision, says he understands how some of the current ticket charges could introduce bias, but he says he never has had a problem with the policy.

“If they’re changing it, I guess it was for the better, but I don’t have any objection with what was the original policy,” he says. “In this business, there is the appearance of objectivity, and there is real objectivity.”