Insight October 2005 Monthly Update

“This issue of Insight features a new mutual fund distribution model that we developed over the past 18 months. Mutual fund distribution used to be straightforward. There were proprietary funds and third-party funds. Significantly, a fund company was proprietary or third-party, not both. Alas, mutual fund distribution is no longer straightforward—at all. The proliferation of wrap programs in the latter 1990s created a new, more complex set of relationships. So did the consolidation of mutual fund dealerships that were purely third-party into national chains that continued to offer third-party funds while building their own proprietary products. Meanwhile, the big banks moved to cover all bases. This evolution has created ever more intense competition and has forced manufacturers to become nimble, creating a whole slew of new relationships and distribution channels. Previously, we focused our tracking on the type of fund—proprietary or third-party—and on the particular types of channels that dealt with retail purchasers: financial advisors, full-service brokers, bank branch staff, etc. Our new model is focused on the arrangement— or relationship—under which a fund purchase leaves the factory. We have used two labels: “retail” and “institutional.” We asked the major companies that account for approximately 90% of total mutual fund assets to provide detailed data on their various distribution routes. Ultimately, we collected data covering about 70% of total assets and used estimation techniques to fill in the gaps. We look forward to refining this as time goes by.”