AGF Management Ltd., the country's fifth-largest mutual fund company, is scrapping a complicated multiple share structure that it admits probably hurt sales.
"People found it very confusing," said Blake Goldring, senior vice-president of sales for the Toronto-based company. "I have a strong belief that it definitely held us back."
The company has been overhauling its product lineup to integrate the funds of 20/20 Financial Corp., which AGF took over late last year. 20/20 used outside managers for all of its funds, many of whom have already been replaced.
AGF had $8.9-billion in assets at the end of July. At the time of the 20/20 takeover, it had about $4.5-billion, compared with 20/20's $3-billion. Before the takeover, AGF's growth in assets had been slow -- just 9.8 per cent in the year ended Nov. 30, 1995, compared with 12.7 per cent for the whole industry.
The changes in the company's funds, which are set for Jan. 1, are to be voted on by unitholders at meetings in Toronto scheduled for Oct. 15.
In 1994, AGF split its funds into three share classes that carried different sales commissions and ways of compensating brokers. The classes -- A, B and C -- boil down to front-end, back-end and no-load pricing.
Buyers of class A shares paid a negotiable up-front commission of up to 6 per cent but were rewarded with a low management fee on their units, which tend to boost returns.
Buyers of B units paid no commission as long as they didn't cash out within eight years, but they faced an annual management fee that's 0.5 per cent higher. Buyers of C units paid no up-front commission, or redemption fees, as long as they were in the fund for longer than six months, but they paid the same higher management fee as holders of the class B units.
For example, a holder of B units in the company's flagship $672-million Canadian Equity Fund pays out about 2.9 per cent annually in fund expenses, Mr. Goldring said. A holder of class A units faces fund costs of about 2.4 per cent.
That difference shows up in performance. The B units returned 9.7 per cent in the year to July 31, 1996, compared with 10.4 per cent for the A units.
Confused? So were AGF many unitholders.
"I know for a fact that a lot of people . . . absolutely hated it," said Jeff Rockel, president of Regal Capital Planners Ltd. of Waterloo, Ont., a nation-wide mutual fund marketer. "I think they lost a lot of sales by going that route."
As of Jan.1, the company plans to sell just one class of share, using the usual fund industry method of offering investors a choice between paying a negotiable sales charge to their broker or a redemption charge payable to AGF if they cash out within a set number of years.
AGF's decision to simplify its funds follows a similar move by Spectrum United Mutual Funds of Toronto, whose unitholders voted last month to return their funds to just one class of share. Spectrum introduced its system in 1993.
"It will make a significant difference for AGF because it removes an irritant, removes an obstacle, for some advisers," said Dan Richards, president of Marketing Solutions, a Toronto-based marketing consultancy. "It was too complicated for advisers and too complicated for investors."
Holders of class A units at AGF will see their management fee rise by about 0.5 per cent a year, but they will get a rebate from the company to compensate, Mr. Goldring said. "No unitholder will be disadvantaged."
AGF also plans to:
Merge the $97-million 20/20 Asian Pacific Fund into its own $606-million Asian fund and merge four bond funds into four others to reduce its sprawling fund lineup to 37.
Retain the 20/20 brand name but use it only for "aggressive" funds, a specialty of 20/20. That includes four volatile small-company funds run by Driehaus Capital Management Inc. in Chicago. AGF's own resource fund will be renamed the 20/20 Canadian Resources Fund. Ten relatively conservative 20/20 funds, including its four balanced and asset allocation funds, will be renamed as AGF funds.
Eliminate administration and termination fees on registered retirement savings plans, registered retirement income funds and registered education savings plans. "People don't like to be nickel-and-dimed," Mr. Goldring said. RRSP fees for unitholders are a maximum $50.
Develop one prospectus and one client statement for an integrated family of AGF-20/20 funds.
© 2007 The Globe and Mail. All rights reserved.
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