WealthManagement Magazine

No-Load Sales Through Full-Service Channels are Growing

Industry executives who worry that individual investors are forsaking the full-service sector can relax a bit, according to a recent study by Cerulli Associates, a Boston-based fund consultant.While investor fondness for lower cost products such as no-load mutual funds continues to grow, no-load funds are increasingly being purchased through wrap account programs provided by fee-based advisers and

Industry executives who worry that individual investors are forsaking the full-service sector can relax a bit, according to a recent study by Cerulli Associates, a Boston-based fund consultant.

While investor fondness for lower cost products such as no-load mutual funds continues to grow, no-load funds are increasingly being purchased through wrap account programs provided by fee-based advisers and brokers.

According to the Cerulli report, almost half of no-load and low-load funds currently are being distributed through adviser-based channels including 401(k) plans, banks, brokers and fee-based advisers. Although historical numbers on this distribution channel haven't been kept, Andrew Guillette, an author of the Cerulli study, says that a significant trend is under way.

"Obviously, there are a growing number of people who like the low cost of these investments but require or prefer the assistance of a financial professional," says Guillette.

No-load funds, much to the chagrin of the full-service industry, have gained market share in recent years. According to Cerulli, no-loads accounted for 39% of assets in stock and bond funds in 1996--an increase from 31% at the end of 1990.

Although direct sales are still the bread and butter of the no-load industry, the direct-marketed funds are building a distribution network of traditional brokerages, banks and fee-based advisers.

Separately, Vanguard, the nation's second largest no-load company, says 10% of its business now flows through fee-based channels, more than double the percentage in 1991. According to Fidelity, the nation's largest no-load company, the percentage of assets from "non-traditional" distribution sources (banks, brokers, etc.) has risen to about 25% as of the end of August, more than double the level from 1991.

Additionally, in mid-September, Fidelity announced it was bringing in the head of its highly successful Canadian operation to head its Institutional Services Co., the division responsible for sales through brokers, banks, planners and advisers.

"This has grown to become a significant part of our business," says Andy Trincia, a Fidelity spokesperson. "There are obviously many people who are seeking help in managing their investments and our products."

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