No-Loads Waive Fees to Summon IRA Investors

Christmas is coming early to investors this year, with word that some major no-load fund families will be waiving their fees for individual retirement accounts starting in 1994.

Three of the biggest no-load companies--the Vanguard Group, T. Rowe Price Associates and Scudder, Stevens & Clark--all have unveiled new IRA fee-waiving policies in recent days. They will join a growing number of no-commission groups that have moved to cut or cap IRA costs in response to competitive pressures.

At an average $10 or $12 per account annually, IRA maintenance or custodial fees have never figured as a major expense for shareholders. Annual fund operating expenses weigh more heavily; so do sales charges imposed by load fund groups.

Yet, IRA fees can still add up, especially for smaller investors who like to spread their holdings among several portfolios and move the money around.

For example, until now there haven’t been any limits on the amount of IRA fees a Vanguard shareholder could theoretically rack up. A person with IRA investments in five funds who switched to five others during the course of a year would face $100 in combined IRA fees.

Vanguard says it will pass the IRA maintenance costs along to shareholders. But the annual impact is expected to be small--less than one “basis point” or $1 for each $10,000 a person has invested, according to Brian Mattes, a Vanguard vice president.

T. Rowe Price, Scudder and most other management companies say they will absorb the IRA maintenance costs themselves rather than pass them along to shareholders.

This is also how Benham Capital Management, which has had a no-fee IRA in place for more than a decade, has handled the situation. “These costs haven’t been a significant drag on profits in any way,” says Seth Bernstein, Benham’s director of product management.

T. Rowe Price will waive its $10 fee on each account with $5,000 or more, while Scudder will drop its $10 charge entirely.

In Vanguard’s case, the company’s $10 yearly IRA fee will be eliminated for each account in which an investor has at least $5,000. Fees will also be waived if the shareholder has more than $50,000 in combined IRA accounts.

“This is clearly a good deal for investors,” Mattes says. The fee waiver, he adds, was made possible by greater economies of scale resulting from Vanguard’s rapid growth--from $77 billion in assets to $125 billion over the past two years.

Yet the new fee policies also stem from competitive pressures exerted by other no-load groups and discount brokerages such as Charles Schwab, Fidelity Investments and Jack White & Co.

Over the past year and a half, these firms have started to allow investors to trade a limited array of no-load mutual funds without adding any transaction charges. The brokerages get reimbursed by the fund companies in amounts ranging from $2.50 to $3.50 per $1,000 investment.

These “no transaction fee” programs enable investors to consolidate their various mutual fund holdings under one roof, while eliminating or greatly reducing their annual IRA expense outlays. Schwab, for instance, waives its $22 annual IRA fee for customers holding $10,000 or more. The programs have proved popular, with Schwab now counting $8 billion managed in this manner.

Significantly, Vanguard, T. Rowe Price and Scudder all have refused to participate in these no-transaction fee programs, partly because of the costs involved and partly due to a potential loss of contact with shareholders.

The upshot of all this fee maneuvering is that fund companies hope to encourage more people to park their IRAs with them.

Until 1987, all wage earners could invest up to $2,000 a year in an IRA and write off what they put in. Today, contributions are still allowed, but deductions are limited to less-affluent individuals and those not covered by retirement plans at work.

Though overall contributions are down from the peak investment years of the mid-1980s, fund companies continue to attract more IRA assets. Swelled by transfers from other types of financial firms and lump-sum rollovers from company retirement plans, the number of mutual-fund IRA accounts reached 24.3 million in 1992, up from 11.6 million in 1986.

The fund industry’s slice of the IRA-market pie totaled 29% last year, nearly triple the level of 1982.

To lure investors, the Gabelli ABC Fund is offering a special promotion--a guaranteed 5% return for 1994 only. If the fund’s appreciation and reinvested dividends fall short of 5% for the year, State Street Bank & Trust has pledged to make up the difference. Shareholders also keep any gains in excess of 5%.

Although larger investments are permitted, the guarantee covers only the first $5,000 a person puts into and leaves in the fund for the full year. The program is on a first-come, first-served basis, until $60 million has been raised. However, interested investors need to get their checks in by Dec. 31, 1993.

Gabelli ABC ((800) GABELLI) is a 7-month-old, asset-allocation portfolio based in Rye, N.Y. A 2% sales charge applies, but it’s waived for the first $5,000. Also worth noting: The fund has a hefty 2.75% expense ratio, about double the norm.

The Investment Co. Institute, the fund-industry trade group, is changing addresses this month. Effective today, the ICI’s new home will be at 1401 H St., NW, 12th Floor, Washington, DC 20005-5800.

Morningstar Inc., the fund-rating service, has already switched to another location, at 225 W. Wacker Drive, Chicago, IL 60606-1228.

IRA-Fee Deflation

Competitive pressures have forced several no-load companies to cap or eliminate annual maintenance fees for individual retirement accounts. Here’s what the 10 biggest no-commission groups, ranked according to size, charge or soon will charge.

* Fidelity Investments: $10 yearly IRA fee waived for each account with $5,000 or more. Fees for smaller multiple accounts capped at $60 per year.

* Vanguard Group: $10 yearly IRA fee waived for each account with $5,000 or more. No fees for multiple accounts if IRA assets exceed $50,000.

* Dreyfus Corp.: $10 per account to maximum $25 per year for multiple accounts. No fee for Dreyfus Growth & Income Fund.

* T. Rowe Price: $10 yearly IRA fee waived for each account with $5,000 or more.

* Scudder, Stevens & Clark: No IRA fees.

* Twentieth Century: No fees if combined IRA assets exceed $10,000. Otherwise, $10 per account to maximum $30 per year for multiple accounts.

* Janus Funds: $12 per account to maximum $36 per year for multiple accounts. Investors who pay $100 for “Janus Lifetime IRA” face no additional IRA fees.

* USAA Group: $12 per account to maximum $24 per year for multiple accounts. No fees if combined IRA assets exceed $50,000.

* Benham Group: No IRA fees.

* Invesco Funds: $10 per year total, regardless of number of accounts.