Putnam Investments is experimenting with a new commission structure in a bid to gain favor with both mutual fund investors and brokers.
The pricing regime, which is being tried out on a new equity fund, is similar to one introduced last year by Fidelity Investments, Boston-based Putnam's hometown rival.
"After being a leader in bank distribution, we're not going to let them come in and take it away from us," said Stephen E. Gibson, Putnam's national retail marketing director.
Under the arrangement, investors in the Putnam Diversified Equity Trust will pay lower-than-usual commissions up front: 4.5% of assets, instead of as much as 7.57% on other Putnam funds.
While that means brokers will collect smaller fees at the time of a sale, they will be eligible for heftier annual commissions for as long as investors hold the shares. These "trailing fees" will equal 0.50% of assets - double the fund industry's usual payout of 0.25%.
The new price took effect June 29, when the Diversified Equity Trust was launched. If it proves popular, the company may attach the same pricing to other funds.
Further Changes Possible
Indeed, Mr. Gibson said, the experiment may well prompt Putnam to refine its pricing options even further. "Over time, customers will want to pay banks on an annual basis, so this is a step in that direction," he said.
Mr. Gibson said he is convinced that fund companies will have to become more creative in their approach to pricing if they want to remain competitive in sales through banks.
Though Putnam is running neck and neck with Franklin Resources and Capital Research and Management in sales through banks, Mr. Gibson believes Fidelity is emerging as its most serious competitor.
Franklin and Capital, "are not innovative" with pricing, Mr. Gibson maintained, adding that "Franklin has lost its leadership" position in the banking market.
Officials from Franklin and Capital did not respond to requests for comment.
Fidelity, on the other hand, has had "great success" since revamping the prices of its Advisor Funds last year, Mr. Gibson said.
Assets in the Advisor Funds have grown nearly 60% to $10.3 billion in the last 12 months through June 30, according to a Fidelity spokeswoman.
