Most to lose with 12(b)-1 reform? AllianceBernstein, Franklin Templeton, Waddell & Reed

Three firms have the largest percentage in assets in share classes with fees of more than 0.25%

Aug 30, 2010 @ 3:57 pm

By Jessica Toonkel

AllianceBernstein LP, Franklin Templeton Investments and Waddell & Reed Financial Inc. are the three publicly traded mutual fund companies with the most at stake pending the Securities and Exchange Commission’s 12(b)-1 reform.

The three firms have the largest percentage in assets in share classes that have 12(b)-1 fees of more than 0.25%, which would no longer be the case if the SEC’s proposal goes through. AllianceBerrnstein has 27% of total assets in these share classes; Franklin Templeton has 26% and Waddell & Reed has 20%, according to data culled by Strategic Insight.

Other publicly traded firms with significant assets in share classes with 12(b)-1 fees of over 0.25% are Calamos Investments at 20% and Legg Mason Inc., at 19%, according to Strategic Insight.

Under the SEC proposal, firms would be allowed to charge a “marketing and service fee” of up to 0.25%. Anything above that amount would be deemed a continuing sales charge, which would be limited to the highest fee charged by the fund for shares that don’t have such a charge.

For fund companies, that could mean finding another way to pay distributors, experts said.

But this is an issue for broker-dealers to figure out, more than one for fund companies, said Avi Nachmany, director of research at Strategic Insight. Under the SEC proposal, broker-dealers would be able to create a new share class, and how they do that will largely determine how this affects fund companies and brokers, he said.

The fact that many of these firms’ assets are in level-load C shares, which charge 1% over time, suggests that investors are already accustomed to a fee-based approach, Mr. Nachmany said.

“I contend that such managers will continue to have a high share of sales in the future, through some fee-based approach where investors pay for advice over time,” he said. “A current high share of assets/sales through level-load funds is a plus, not a minus, in terms of the future opportunities of these managers.”


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