The rise and rise of the middle man in the US
The trend towards intermediary-based distribution in the US is gaining momentum, with more than three-quarters of new money invested over the past year in mutual funds coming via an intermediary.
The Investment Company Institute in the US estimates that 77 per cent of last year's equity and bond fund purchases were made through an intermediary of some sort, such as a financial adviser, a broker or a 401(k) retirement plan. The remainder of net new investments was made directly by individual investors without an intermediary, according to the ICI.
The numbers contrast with estimates made a few years ago that suggested that nearly half of US mutual funds investments were made via the direct channel.
"It's clear that the do-it-yourself investor won't be the source of future growth for fund companies," said Neil Bathon, head of US research outfit Financial Research.
"We project that the percentage of sales derived from do-it-yourself investors will fall to 10 to 15 per cent over the next three years."
The biggest fund manager in the US, Fidelity Investments, introduced eight what it calls "Advisor" funds last month designed to be sold through intermediaries.
"We've seen steady growth in intermediary-based distribution over the past five years," says Dennis Gallant, an industry consultant at Cerulli Associates, explaining why Fidelity and other firms are offering more funds.
Investors want assistance at a time when they're confronted with "an overwhelming range of product choice and are confused about how best to save for retirement and meet other investment goals", Gallant said.
Independent financial advisers, or those who aren't affiliated with a brokerage firm, bank or insurance company, represent "one of the fast-growing intermediary channels," Gallant said.
These advisers generally charge fees based on the assets they manage as opposed to charging commissions for each transaction they make.
They oversee about $445 billion of assets, including about $129 billion invested in mutual funds, according to researchers at Cerulli Associates. That's up from $344 billion in 1997, including about $94 billion in mutual funds.
Recommended for you
Licensing regulation should prioritise consumer outcomes over institutional convenience, according to Assured Support, and the compliance firm has suggested an alternative framework to the “licensed and self-licensed” model.
The chair of the Platinum Capital listed investment company admits the vehicle “is at a crossroads” in its 31-year history, with both L1 Capital and Wilson Asset Management bidding to take over its investment management.
AMP has settled on two court proceedings: one class action which affected superannuation members and a second regarding insurer policies.
With a large group of advisers expecting to exit before the 2026 education deadline, an industry expert shares how these practices can best prepare themselves for sale to compete in a “buyer’s market”.
