The Fund Industry: How Your Money is Managed, 2nd Edition

SECTIONThree

Sales and Operations

So far, we've been looking at mutual funds themselves—how they're structured, the rules that govern them and how they are invested. In this section, we examine two other critical aspects of the mutual fund business: the sale, or distribution, of mutual fund shares to investors and mutual fund operations, which includes client service and portfolio recordkeeping.

Mutual funds are distributed through three channels:

1. In the intermediary channel, consumers purchase funds through wire-houses, independent broker-dealers, registered investment advisers, banks, or discount brokers. These firms act as intermediaries between fund sponsors and investors.
2. In the direct channel, a consumer buys shares directly from the fund.
3. The retirement channel encompasses 401(k) plans and other employer-sponsored retirement plans known as defined contribution plans.

Fund management companies make a considerable investment in developing a sales strategy and building a sales force to distribute their funds through one or more of these channels.

Fund operations may be less visible than fund distribution, but they are an equally critical component of the industry. These operations are carried out by a set of service providers working on behalf of the fund. Some of these service providers may be part of the fund management company, while others are third parties. Fund operations account for a large proportion of industry employment; in 2013, 4 of 10 jobs were in investor servicing ...