NEW MFS LEADER FILLING BIG SHOES OF LONGTIME CHIEF: SALES GAINS MAY NOT HOIST MARKET SHARE

The new head of Massachusetts Financial Services must feel a bit like a nervous co-pilot who is handed the controls before the plane reaches a safe altitude.

Jeffrey Shames, who had been president since 1993, took over in February — days after the death of the Boston-based mutual fund group’s mercurial chairman, Keith Brodkin.

“It was expected that I would eventually take over; it just wasn’t supposed to happen quite this soon,” Mr. Shames said during his first interview since he was appointed to run MFS. With $77.6 billion in assets under management, the firm ranks among the 20 largest fund groups in the country.

The change in command came just as once-sleepy MFS, which believes that it is the country’s oldest mutual fund company, was starting to gain momentum in its efforts to reclaim the stature it once held in the industry — 20 years ago it overshadowed even Fidelity Investments.

Last year, MFS was one of the top-selling fund complexes, with net inflows totaling $5.6 billion — a 51% increase over 1996 — according to Boston-based Financial Research Corp. The fund firm contributed $55.7 million in cash to its parent Sun Life Assurance Co. of Canada last year, up from $49.9 million in 1996, according to a spokesman in Toronto.

This year promises to be another good one for MFS. The acclaimed Emerging Growth fund, run by John Ballen, is in the first percentile of the mid-cap funds ranked by New York-based Lipper Analytical Services, with a 21.23% year-to-date return. MFS Value, up 17.13% in 1998, grabs an 11th-percentile ranking among capital appreciation funds.

MFS is downplaying the impact of Mr. Brodkin’s death on day-to-day operations, but those familiar with the company say his absence will be felt. That’s because Mr. Brodkin, who died at 62 of complications from heart surgery, was largely responsible for shaking MFS out of its 15-year rut and spearheading recent efforts to build brand-name recognition, fill gaps in its product line and pursue institutional assets.

major impact

“Keith was the clear leader of the organization,” says Louis Harvey, president of Dalbar Financial Services, a Boston mutual fund research company. “His untimely passing is going to have an impact on the firm that is a lot more than emotional.”

Maybe not. Mr. Brodkin, who would have been forced to retire from MFS in less than three years, had already begun to cede certain duties to Mr. Shames, who is 42. For example, it was Mr. Shames who hand-picked the members of the firm’s newly formed management committee last year. Its seven members, who include Mr. Shames as well as the heads of various departments, meet weekly.

“I had already been making most of the day-to-day decisions,” Mr. Shames says. “To Keith’s credit, he had been slowly pulling out of the day-to-day decision making.”

Mr. Shames says his immediate goal is to double MFS’s 6% share of the $1.14 trillion market for funds sold through broker-dealers by 2000.

To many in the industry, he may be setting his sights too high — especially since to reach 12% MFS would have to wrest assets from such formidable rivals as American Funds Distributors Inc., Putnam Investments and Franklin/Templeton Distributors Inc. The firm’s recent decision to cancel its television advertising campaign isn’t going to make growing market share any easier, skeptics say.

not much room

“It’ll be extremely difficult for them,” says Ray Libertore, an analyst with Financial Research Corp. of Boston. “The top players control more than 60% of the market, which means there isn’t too much at the bottom for MFS to pick from.”

Another hurdle is the firm’s lack of international funds. U.S. mutual fund companies have been beefing up their presence in international equity funds for years to give U.S. investors a place to put their money in case the U.S. stock market tanks. At yearend 1997, only about 4.3% of the firm’s assets were in international funds. A fund group the size of MFS should have about 12% to 15% of its assets invested overseas, according to analysts.

“We are taking steps to expand our international equity group,” Mr. Shames says. “We just opened an international equity office in Singapore and we’ll be opening one in Tokyo in December.”

MFS is used to overcoming hurdles. Back in 1994, the company realized it was fast losing market share, as well as assets, to such hungry fund titans as Putnam and Franklin/Templeton. Its share of the rough-and-tumble wholesale market dipped to 3.5% in 1994, the year the bond market tanked, vs. 4.7% in 1991. Net outflows in 1994 were $92 million, down from an inflow of $4.4 billion the previous year, according to Financial Research Corp.

“For years, this was a partnership that was making a lot of money,” explains Mr. Shames. “People could have cared less about bringing in new money.”

The company set about changing that by strengthening its sales and distribution channels. Since 1994, it has bolstered its sales force by 50% to 90 people.

It also made inroads in such new distribution channels as selling through registered investment advisers and the trust departments of banks.

ad push scaled back

In 1996, MFS launched a $10 million, 18-month print and television advertising campaign. The firm is spending just $5.5 million on advertising this year, reflecting a decision to stop running TV commercials because they were getting too expensive.

On the institutional side, MFS has increased assets under management to $15 billion and its staff to 85 — up from $2 billion and five employees five years ago. One of the firm’s goals, says Mr. Shames, is to double assets and rank among the top 30 U.S. institutional money managers within two years. It has a long way to go: According to sister publication Pensions & Investments, MFS ranked 105th out of 748 such firms last year.

While Mr. Shames intends to continue along the course he and Mr. Brodkin plotted out together, he concedes that his management style is different than his mentor’s.

“Keith was much more chairmanesque,” he says. “He stayed on his floor and people came to him. I was always the one walking around.”