WealthManagement Magazine

Wirehouse Funds Losing Market Share

Since 1990, Dean Witter, Merrill Lynch, Prudential, PaineWebber and Smith Barney have lost significant market share in all three main asset categories--equity, tax-exempt bond and taxable fixed income.According to asset data from Lipper Analytical Services and the Investment Company Institute, in 1997, the five firms captured 6.2% of the equity fund market, a drop of more than two percentage points

Since 1990, Dean Witter, Merrill Lynch, Prudential, PaineWebber and Smith Barney have lost significant market share in all three main asset categories--equity, tax-exempt bond and taxable fixed income.

According to asset data from Lipper Analytical Services and the Investment Company Institute, in 1997, the five firms captured 6.2% of the equity fund market, a drop of more than two percentage points from 1990. They took 7.9% of the tax-exempt fixed-income funds market in '97, nearly a four-point drop from '90. And the five wirehouses held just 5.2% of the taxable fixed-income funds market in '97, down from 16% of the market they held in 1990.

The asset share of load funds industrywide (including variable annuity assets) has also slipped, however, from 57% in 1994 to 46.8% in 1997.

All of the firms experienced asset growth in their fund complexes, and in most categories.

But since 1990, all the wirehouses have lost market share in every category, except Smith Barney, which saw its share of tax-exempt income funds grow from 2.2% in '90 to 2.7% in '97 (see charts in magazine).

Prudential captured less than 1% of the taxable muni funds category in '97 versus 3.5% in '90.

Merrill Lynch lost market share in all three categories, the biggest chunk in tax-exempt fixed-income funds, which dropped to 2.4% in '97 from 4.6% in '90.

Fund industry watchers attribute some of the slide in fixed income to a series of proprietary product disasters, especially in taxable income funds.

"The most successful taxable income funds are junk bond funds and 401(k) products," says Geoff Bobroff, head of Bobroff Consulting in East Greenwich, R.I. "More of the buzz is outside the proprietary world."

"On balance, proprietary funds in most brokerages have been outperformed" by competitors, explains Dennis Dolego, director of research with Optima Group, a Fairfield, Conn.-based consulting firm. Brokers "choose on a performance basis, the best in class."

Another factor: Since the Tully report on broker compensation, which recommended level payouts for all products, firms have shied away from blatantly pushing proprietary products, according to Bobroff. "Most firms have satisfied that [Tully recommendation]. Would they like to do more [internal funds]? Yes. But brokers want to remain independent--a third party."

Adds Dolego, "A broker has a fiduciary responsibility to sell the best product he can find."

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