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The Fund Industry: How Your Money is Managed, 2nd Edition by Robert Pozen, Theresa Hamacher

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CHAPTER 11

Retail Distribution

Individual, or retail, investors are by far the biggest purchasers of mutual fund shares: In fact, 90 percent of open-end mutual fund shares were in individual accounts at the end of 2013.1 In this chapter, we begin our look at how mutual fund shares find their way into those accounts through the industry's system of retail sales or distribution.

Consumers can buy fund shares through three different avenues:

  1. They can invest through intermediaries, using professional advisers to interact with the fund management company. These advisers usually provide personalized investment advice in addition to transaction processing. This is the intermediary channel.
  2. Or they can purchase shares directly from the fund sponsor in the direct channel.
  3. Finally, they can participate in a retirement plan provided by their employer, such as a 401(k) plan, in the retirement plan channel.

Individuals may seek out a specific fund or fund family, or they may select from a group of funds from multiple sponsors in a fund distribution platform.

This chapter discusses:

  • The factors that drive sales of mutual fund shares.
  • The characteristics of the intermediary and direct channels.
  • Mutual fund platforms, including fund supermarkets, mutual fund wrap programs, donor-advised funds and college savings accounts.
  • Considerations for fund management companies in establishing a distribution strategy.

We will continue our review of retail distribution in the next chapter, when we look ...

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