Fidelity, following the field, offers back-end-load option.

Even Fidelity Investments, the giant of the mutual fund industry, occasionally has to struggle to keep up with the Joneses.

Following the lead of nearly every other major fund company and several banks, Boston-based Fidelity has enabled its customers to defer sales charges on investments.

The payment option, known in industry jargon as a back-end load, is available on eight of the 15 portfolios in Fidelity's Advisor Funds line, which are marketed through banks and other financial intermediaries.

Back-end loads "are in demand among long-term investors who do not plan to redeem shares in the near future," said Paul Hondros, president of Fidelity Investments Institutional Services, a unit that manages sales through financial intermediaries.

Popularity Rising

The funds should also prove popular with "cost-conscious investors who prefer to spread out their sales charges over an extended period of time," Mr. Hondros said.

Many companies have added back-end loads to take advantage of their growing popularity.

The amount of money flowing into back-end load funds nearly doubled in 1993, to $22.2 billion, from $11.3 billion in 1992, according to Strategic Insight, a New York consulting firm that tracks the mutual fund industry.

Back-end loads have found an especially strong following among bank customers, Who tend to be averse to paying commissions up front, as is usual with mutual funds.

Customers who buy funds with back-end loads can even avoid sales fees altogether. That's because the fee for cashing out of the funds declines the longer the investments are held, and typically disappears after six years.

Fidelity's back-end fees decline from 4% the first year to 0% in five years, a year earlier than many competitors' products, the company said.

Admittedly, Fidelity was "a little late" in adding a back-end load pricing option, said David Liebrock, senior vice president for bank broker/dealers. "But we didn't want to rush to the market," he said.

Fidelity spent several months looking at which products would carry the back-end pricing feature, and how to finance commissions.

Companies that offer backend loads have to advance commissions to brokers who sell the funds, even though these fees aren't collected from customers until they redeem their investments.

Fidelity decided to handle these payments itself, rather than lining up outside financing.

But competitors said Fidelity may not be offering enough money up front to satisfy banks that sell its products.

"Banks want the maximum amount up front," said Stephen E. Gibson, marketing chief at hometown rival Putnam Investments.

Fidelity's upfront payments to the banks are about a percentage point lower than the average, Mr. Gibson said.

But Fidelity officials note that the company will pay a 0.25% "trailing commission" to brokers one month after a sale is closed. Most fund companies wait 13 months before they make these payouts, which are funded by so-called 12b-1 fees.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER