EVEN BETTER: ALL OF BIG GREEN’S STOCK OFFERINGS TO CARRY PERFORMANCE FEES – AMEX TO SCRAP IDS FUND NAME

American Express Financial Advisors is dumping its IDS moniker for the better known AmEx name, laying the groundwork to market its mutual funds to brokers beyond its network of 9,000 reps.

AmEx inherited the IDS brand when it bought Minneapolis-based financial planning pioneer IDS Financial Services 15 years ago. American Express Co. stamped its name on the financial-adviser unit five years ago, but the IDS brand has stuck to the firm’s mutual funds and insurance. The funds now will become the American Express Funds, or the AXP Funds for short.

Perhaps more important than a name change: AmEx is instituting performance-based fees — charges that rise or fall depending on a portfolio’s performance vs. a benchmark index — on all its stock funds.

Already in place on 11 funds, the fees will be extended to the 10 equity funds that don’t have them, making AmEx the only firm in the country to embrace performance fees to this extent. (The industry’s market leaders, Fidelity Investments and Vanguard Group, have performance fees on some, but not all, their stock funds.)

AmEx also is hiking the 12b-1 fees, annual marketing charges that cover the cost of trailing commissions for advisers, to help boost pay for its planners. The fee increase, from 0.175% to the industry norm of 0.25%, also could help make the funds more alluring to outside brokers once AmEx moves to broaden their distribution.

“It is simply impossible for us to ensure adviser retention over the long term unless we stay competitive (on commissions),” says Pamela Moret, AmEx vice president overseeing funds, variable annuities, separate-account programs and individual retirement accounts.

For the first time, AmEx also is imposing 12b-1 fees on holders of its variable annuities — not the norm in that industry, which has

been criticized for the complexity and amount of its fees. AmEx’s new annuity fees will be 0.125%.

The proposed changes, outlined in proxy documents filed with the Securities and Exchange Commission a week ago, come as AmEx is planning to raise pay for its advisers and give them a greater choice of investment products from outside firms to sell (InvestmentNews, March 8). Because AmEx relies principally on its planners to sell its funds, it sees a need to broaden its distribution to compensate for possible sales declines once those reps are given more freedom.

The changes aren’t likely to happen for a while, though. AmEx is targeting March 2000 to begin making the changes for its own advisers and doesn’t expect to pursue outside brokers for its asset-management products until sometime after that.

Still under discussion is how broad AmEx’s outreach will be. It already sells funds through a smattering of relationships with banks and credit unions. Will it go so far as to list them on fund supermarkets like Charles Schwab Corp.’s OneSource program, which independent advisers use to trade funds? It’s a subject of internal debate.

AmEx senior vice president Norm Weaver calls supermarket sales a possibility. But there’s some trepidation, given the experience some fund companies have had with advisers, liberated by not paying transaction fees, using the supermarkets to dart in and out of funds.

“I’m not a big fan of (the supermarkets),” Ms. Moret says. “The persistency (of assets) is absolutely terrible in those programs. I’ve talked to a lot of people in the (fund) industry who are sorry they ever entered the supermarkets.”

Regardless, AmEx needs to improve the performance of its funds to attract significant outside sales. While it boasts a few standouts on the stock side — IDS New Dimensions is a perennial top seller — many are mediocre offerings.

Adding performance-based fees — which in AmEx’s case reward or penalize the firm by adding or subtracting as much as 0.08% or 0.12%, depending on the type of fund, from the management fee — could help change that.

“I think it’s a great way for us to put our money where our mouth is,” Ms. Moret says.

Robert Levitt, a Boca Raton, Fla., adviser who is a supporter of performance-based fees, says: “I think 12 basis points puts the incentive in the right place (for a money manager). I would give (AmEx) a lot of bonus points for doing that. On the amount of money they have under management, that’s a lot of money.”

But observers say AmEx — like other big brokerages with ho-hum mutual fund performance — has a challenge if it wants to sell through outside brokers. As wirehouses like Merrill Lynch & Co. Inc. have backed away from paying their reps more to sell their own funds, they’ve struggled with improving their asset-management divisions. AmEx is about to experience the same transition.

“Registered investment advisers or independent brokers of any kind are reluctant to sell products from direct competitors,” says John T. Story, managing director in the San Francisco office of Global Distribution Partners, a consultant to money managers. “While (broadening distribution) is a strategy that makes sense, I think it’s incredibly hard to implement.”