MFS has suspended commission payments on the $770 million MFS Premium Income Fund as the company’s financial situation worsens.
MFS Investment Management (MFSIM), the fund’s manager, emailed financial advisers on March 18 to tell them commissions were stopped on February 1 in line with the suspension of distribution payments to stranded investors.
“Following the cessation of payment of distributions . MFSIM has decided to suspend payment of trailing commissions until distribution payments are resumed,” MFS told advisers in the memo.
Distributions to investors were suspended indefinitely on March 11.
MFS more than halved the fund’s up-front commission level because some advisers were withdrawing their clients’ investments and reinvesting them to earn commissions again.
The Wholesale MFS Premium Income Fund (PIF), which has no management expense ratio (MER), invests into the retail MFS PIF, which has a 40 per cent weighting in mortgage loans. MFS shares the MER with advisers.
Platform provider netwealth removed the fund from its investment menu in June.
The pressure MFS is under has worsened as it scrambles to sell assets and refinance debt amid the global credit squeeze.
The manager defaulted on its $184 million loan facility with Royal Bank of Scotland this month, effectively giving the bank control of the fund.
The problems for advisers began to simmer around 12 months ago when MFS changed its commission structure from 1 per cent up front to 0.40 per cent a year, blaming difficulties from the regulatory environment and the adviser churn rate.
The change affected 30 per cent of the “adviser-referred” funds, MFS told advisers.
MFS said it also had an expanded range of offers via the wholesale fund and had a need to grow the fund.
IMF announced yesterday it will fund shareholder class actions against MFS Limited and fellow embattled fund managers Allco Financial Group and Centro Properties Group for inadequate disclosure.
IMF is behind two long-running class actions against Professional Investment Services relating to the Westpoint property collapse.
