NEW YORK - Some registered representatives are seeing losses or gains to their incomes as mutual fund companies jockey to pay reps for selling funds amid an ever-shifting regulatory landscape.
A variety of brokers have seen recent changes from three fund companies.
Most notably, reps affiliated with InterSecurities Inc. of St. Petersburg, Fla., last month were told that marketing, or 12(b)-1, fees would be eliminated on 11 Transamerica IDEX asset allocation portfolio funds that were closed to new investors as of Oct. 31.
InterSecurities and IDEX Management Inc., also of St. Petersburg, are owned by insurance giant AEGON NV of The Hague, Netherlands.
One other fund company making changes is Van Kampen Investments Inc. of Oakbrook Terrace, Ill. Also, Royal Alliance Associates Inc., a New York-based broker-dealer, is changing how advisers get paid for selling the Seattle-based WM Group of Funds.
When fund companies change fees to reps, it often can create a thorny, behind-the-scenes issue for the brokers, industry observers said.
'Betrayal' to reps
If a rep moves the clients to a new fund, the client could face a tax problem. But if the broker leaves the client in the account, they don't get paid, and the client then runs the danger of seeing service suffer, observers said.
"The board of directors wasn't living up to their fiduciary responsibilities by eliminating the fund choices," said one InterSecur-
ities broker, who asked not to be identified.
"But also it was a betrayal to the reps who sold the funds over the past 20 years."
In an Oct. 14 memo, InterSecurities' registered reps were told that Transamerica IDEX was stopping its sale of A, B and C shares on the 11 funds, with current shareholders able to invest through the end of February.
After that, the funds "will cease the payment of distribution and service (Rule 12(b)-1) fees by each class of shares," according to the memo.
The distribution of 12(b)-1 fees to brokers and advisers has been a hot topic in the industry and among securities regulators up until recently, industry observers said.
Interest has cooled, observers said, as regulators have become more aware of the way in which fees are used.
Other fund companies have been switching policies regarding fees.
In a turnaround, Van Kampen said in a September notice to shareholders that it once again was changing how it was paying brokers and advisers who sold their funds in 403(b) plans.
In June, Van Kampen cut the sales load that brokers collected when selling their funds in retirement accounts designed for employees of non-profit institutions such as public schools (InvestmentNews, June 6).
Now Van Kampen wants those advisers to get paid for working with clients, with the changes taking place Dec. 5.
"The result of this change diminished the ability of a financial adviser to provide [the client] with investment advice and retirement-planning guidance," Van Kampen commented in its notice to shareholders.
"The revised policy, which permits the sales of fund shares with a sales charge where appropriate, provides for continuity of service to you from your financial adviser."
"Van Kampen values and supports the role financial advisers play in working with their clients," said Chad Peterson, a New York-based spokesman for the company, which is a subsidiary of Morgan Stanley, also of New York.
That hasn't prevented broker-dealers from pruning back fund company fees to brokers and advisers that they don't deem appropriate.
Royal Alliance recently told its clients that at the end of September, its advisers would no longer receive a half percentage point fee its advisers collected on sales of revenue-sharing agreements with some funds sold by the WM Group of Funds.
That is on top of the quarter point of 12(b)-1 fees, said one adviser, who also asked not to be identified. That cut, however, won't affect the adviser's decision, as WM is "a good group of funds," the adviser said. The half point "is irrelevant."
"WM Advisors fully supports any decision broker-dealers make with regard to accepting or not accepting" the fifty basis point fee, said Libby Hutchinson, a company spokeswoman.