Fleet Financial Group is scrapping its vaunted no-load mutual fund strategy.

Starting Nov. 1, the Rhode Island-based banking company plans to impose a fee, at a rate of 3.75% of dollars invested, on most purchases of its Galaxy mutual funds. In return, Fleet will expand its investment counseling services to mutual fund customers.

The shift, announced Tuesday, is a radical one for Fleet, which is widely viewed as the leader among the handful of banking companies that offer no-load funds. The Galaxy Funds, launched in 1991, now total $5.7 billion, placing Fleet 17th among banks in fund assets under management.

The vast majority of the 118 banks that manage mutual funds market them through brokers, who render investment advice and collect sales fees. But Fleet has long insisted that no-load funds are a better value for customers, because the entire amount invested is put to work. That's because no-load funds are typically sold by direct mail and telephone, making it unnecessary to pay sales commissions.

But Thomas N. Howe, executive vice president and managing director of Fleet Investment Services, said the company has determined that customers want more hand-holding.

"In order to support the extra services we plan to provide, we need to charge a sales fee," he said in a telephone interview.

Industry observers said this approach makes sense. "Customers are looking for assistance, and any bank providing them with that will have a better shot at building better relationship with them," said a consultant, who did not want to be quoted by name.

Others speculated that Fleet was finding it increasingly difficult to compete as a no-load mutual fund family.

Fleet was "clearly a leader in retail distribution of no-load funds through the bank channel, and they were successful," said Avi Nachmany, a partner with Strategic Insight, a mutual fund consulting firm in New York. "But there are difficulties to building a profitable no-load operation through a bank."

For instance, he noted, two fund companies - Vanguard Group and Fidelity Investments - together account for more than two-thirds of the cash flows into no-load mutual funds.

The other no-load providers have competed chiefly on their investment reputation and niche position, Mr. Nachmany said. "To me, a bank should not really focus on niches and narrow positioning. A relationship with a bank is much more of a core, diversified relationship."

Fleet's move "makes a statement as to how critical marketing muscle is (to no-load fund sales), and to how expensive it can be," said A. Stewart Rose, principal at Alexander S. Rose Co., Boston, which advises financial services companies on marketing.

Observers added that Fleet faced pressure from its salaried investment sales staff to find a way to compensate them for bringing in business. And they said the company's pending merger with Shawmut National Corp. puts the investment services unit under the gun to boost revenue.

Fleet previously has considered adding sales loads to its mutual funds - notably in early 1994, when the company undertook a major restructuring. At that time, Richard Jones, then president of Fleet Investment Services, said the company concluded that customers would be better served with no-load funds.

No-load fund sales were instrumental to the Galaxy Funds' growth, Mr. Howe said. "The reason we came out with no-loads in the first place is that we thought we would grow faster without a load."

Now, he added, the fund family has achieved "critical mass" - a level at which it can be operated profitably, typically pegged at $5 billion.

To stem potential objections to the new sales charges, Fleet will exempt investors who have bought Galaxy shares before the Nov. 1 cutoff. Retirement, wrap-fee, and automatic investment accounts will also be free of sales fees.

Announcing the change in a press release, Fleet accentuated the positive. The headline read: "Fleet Announces Program to Build on Success of Galaxy Funds and Further Meet Customer Needs."

Then, in smaller type: "Change to Fund Loads for Some New Investors Planned as Part of Efforts."

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