Great Western Financial Corp. has raised sales charges on retail shares of its stock mutual funds to entice outside brokers to sell more of them.
The Chatsworth, Calif.-based thrift hiked maximum up-front sales charges, or loads, to 5.75% from 4.50% on its proprietary Sierra Trust Growth, Growth and Income, Emerging Growth, and International funds, effective March 1.
The move is intended to bring brokers' compensation for selling Great Western's funds into line with that for stock funds from nonbank fund companies, such as AIM Capital Management, Putnam Investments, and Capital Research and Management Co., executives at the thrift said.
"The reason we're doing it is that we want to be on a level playing field," said David J. Schulman, vice president and national sales manager for Great Western's Sierra Trust proprietary funds.
But whether consumers - especially existing shareholders - will accept the commission hike remains to be seen.
"In general, the industry trend is that loads are coming down, and this is a price increase," said David Master, a consultant with Optima Group, Fairfield, Conn.
At the same time, Mr. Master concedes that Great Western has "made a major commitment to wholesaling and outside distribution, so it's not an irrational strategy."
As part of an introductory promotion, Great Western will forgo its distribution fee and brokers will pocket the entire sales fee, up to 5.75%.
Subsequently, brokers will collect as much as 5% in sales charges, depending on the size of the order, which is up from a previous maximum of 4%. Also under the revised fee schedule, Great Western will retain as much as 0.75% of the sales charges, an increase of 25 basis points over the previous distribution fee.
Although Great Western didn't begin selling its proprietary funds through outside broker-dealers until 1992, that distribution channel has become increasingly important during the last year.
In fact, for the first time sales by outside brokers surpassed those by in-house brokers, accounting for just more than half of the $150 million in funds sold during the first quarter, thrift executives said. And that's happening as total fund sales from both channels are rising, increasing 50% from the first quarter of 1995.
"Just getting selling agreements on file doesn't get you very much," said Keith B. Pipes, senior vice president and chief financial officer for Great Western Investment Management, the proprietary fund unit. "The first real step is getting brokers to start selling your product, then sales tend to build on themselves."
