MFS adopts open platform, level commissions

Sep 26, 2005 @ 12:01 am

By Rick Miller

CHICAGO - To stay competitive in the 401(k) plan market, MFS Retirement Services Inc. in Boston is switching to an open-architecture platform, doubling its support staff and moving toward equalized commissions for advisers.

"As far as level comp, that's pretty revolutionary," said Fred Barstein, chief executive of 401kExchange Inc. in Lake Worth, Fla.

As of next Saturday, whether an adviser sells MFS or non-MFS funds, they will earn the same commission, with all payments coming from MFS. The company said in a press release that it believes that this "new degree of uniformity will make it easier for advisers to communicate their pay structure."

Brokers who select for 401(k) plans mutual funds that pay them different levels of compensation are running afoul of rules under the Employee Retirement Income Security Act and risk having to disgorge their commissions [InvestmentNews, Feb. 14].

Evenhanded approach

"I think it is a new trend," said Rick Meigs, president of LLC, a Portland, Ore.-based information website.

"These players have to be able to convince the astute plan sponsor and their independent consultants who are working for them that they don't have a mutual fund sales person out there pitching one fund over the other, based upon commissions that they are going to be paid," he continued.

"So by equalizing and disclosing, you neutralize that, and it makes you far more competitive in the marketplace," Mr. Meigs said.

The changes at MFS Retirement Services, a unit of MFS Investment Management, come as its parent company, Sun Life Financial Inc. in Toronto, is making "significant investments … to help us grow our business so that we can more effectively compete," said William Shaw, senior vice president, director of marketing at the retirement unit.

This fall and into 2006, MFS is doubling to 50 the number of field support staff members who serve plan sponsors and wholesalers who work with advisers, Mr. Shaw said.

As of June 30, MFS had more than $14 billion under record-keeping management in 6,800 retirement plans and about 1 million plan participants, company officials said.

Among the other developments, MFS will be offering more of an open-architecture structure as of Saturday, with plan sponsors able to select among hundreds of mutual funds from more than 20 different fund companies. However, to ensure a balanced fund lineup, plan sponsors must include the MFS Fixed Fund and one of the firm's asset allocation investments.

"For investment firms, I think we are leading the way," said Mr. Shaw. "Insurance companies have been [offering open architecture] for some time, and they were putting a wrap fee around their program, obviously so they could make money.

"We don't have any wrap fee," he continued. "It helps us to compete more effectively against insurance companies as well as investment firms."

Critical mass

Generally, mutual fund companies kept away from open architecture in 401(k) plans, because requiring plan sponsors to use a certain number of proprietary funds is how they made money, industry experts explained.

"It was a little bit of a dangerous strategy," noted Mr. Barstein, "because if your funds didn't perform well … now all of sudden, even if you had good service, your plan is not competitive. So everybody has been moving to this. In terms of mutual fund companies, I think [MFS is] being more aggressive than others."

MFS still believes that it can make money in an open-architecture format, which more plan sponsors are demanding.

"To make money in the retirement business, it is all about critical mass," Mr. Shaw said. "The bigger we grow, the stronger and more profitable we will be."


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