The investment adviser to the American family of mutual funds is considering paying brokers "consistency fees" based on how long investors hold on to their portfolios.
James Rothenberg, president of Capital Research and Management Co., the Los Angeles-based investment adviser to the American Funds Group, said Capital would pay the fees in addition to traditional sales commissions and 12b-1 marketing fees.
"We're thinking about making payments tied to the redemption rates we experience," Mr. Rothenberg said. He added that the fees would lead to better relationships between Capital Research and the broker-dealers that sell its American family of funds.
Mr. Rothenberg made his remarks Tuesday at a media briefing sponsored by the Forum for Investor Advice, a Bethesda, Md.-based trade group that represents load mutual funds. He stressed that his company is not paying consistency fees yet - it is simply exploring adopting them.
Capital Research would determine the fees by comparing a specific broker-dealer's redemption rates with the company's averages, Mr. Rothenberg said. Brokerages with higher-than-average rates would be paid lower consistency fees; those with lower-than-average rates would be paid higher fees.
Mr. Rothenberg was one of four mutual fund executives at the briefing to discuss the future of adviser-sold funds. "Quality advice is a growth business," he said. But he predicted that the way investors will pay for advice will shift away from sales-based commissions to financial planning fees.
"Load versus no-load will no longer be relevant," he said; instead investors will ask, "Do I need advice? Where will I get it. And how will I pay for it?"
His remarks came on the heels of a plan by Securities and Exchange Commission Chairman Arthur Levitt to crack down on pay practices that can persuade brokers to push certain products, including raising their commission rates as they generate more revenue.
Another hot topic for panelists at the trade group's event was merger and acquisition activity within the financial services industry.
Though many mutual funds have changed hands, the executives were quick to point out that the business is not consolidating. Mutual fund companies are not merging because of overcapacity, said Robert H. Graham, president and chief executive officer of AIM Management Group, Houston.
"That's what we're seeing in the banking industry right now," he said.
Cross-industry deals, like Citicorp's planned merger with Travelers Group, have a different goal, he said.
"Banks have lost a lot of market share to mutual funds," he said. "They are trying to get some of that back."
