Key Trends in US
Intermediary-Sold Fund
Distribution
Dennis Bowden
Assistant Director of U.S. Research
dbowden@sionline.com
US Intermediary-Sold Distribution Landscape
Sales by Distribution Channel as a Percentage of Total Sales
45%
40%
2010
2011
% Change 2009 - 2011
35%
% of Total Gross Sales
2009
+9%
-1.5%
30%
+1.0%
25%
-0.7%
20%
+0.7%
15%
10%
5%
0%
Wrap/Fee Nat'l BDs Indep/Reg'l Investment
Based
BDs
Only DC*
Advisory*
*Only among firms providing breakdowns of Wrap/Fee-Based Advisory and Investment
Only DC sales, respectively. Note - these sales may span multiple standalone channels.
Source: SI Fund Sales Survey
RIAs
Pure Inst'l/ Bank BDs Insurance
Other
Agents
Distribution Channel Sales Growth 2011 – Fee-Based
Programs Continuing Rapid Growth; RIA, IODC
Leading Standalone Channels in 2011
Sales by Channel: Annual Sales Growth (%)
35%
35%
2011
2010
30%
30%
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
Wrap/Fee
Based
Advisory
RIAs
Source: SI Fund Sales Survey
IODC
Indep/Reg'l Pure Inst'l/ Insurance Nat'l BDs Bank BDs
BDs
Other
Agents
Wrap / Fee-Based Advisory Programs
 Key driver of growth across expanding segments on the
intermediary-sold marketplace
 Fee-based sales grew faster than any standalone channel during each of
the past three years
 Opportunities but also challenges
 Widening competitive landscape – to include many traditionally directsold firms, as well as ETFs
 Fund profitability challenges within an evolving economic reality
 Rising distribution costs + increasing demand for lowest-cost share class
 Secular increase in asset velocity and longevity risk
- Centralized decision-making vs. more heterogeneous FA/investor pools
- Implications around growing discretionary advisor community
Platform Redemption Patterns – Balancing Sales Growth
with Asset Stability & Profitability Considerations
National BD Platforms - Monthly Redemption Rates
January 2008 - June 2011
18%
Total Industry (ICI)
Rep as PM
Rep as Advisor
Home Office Model
Commission-Based
16%
14%
12%
18%
16%
14%
12%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
Jul-0
9
Sep-0
9
Nov09
Jan-1
0
Mar10
May10
Jul-1
0
Sep-1
0
Nov10
Jan-1
1
Mar11
May11
10%
Jan-0
8
Mar08
May08
Jul-0
8
Sep-0
8
Nov08
Jan-0
9
Mar09
May09
10%
Source: Coates Analytics Distribution Management System / ICI / SI Analysis
National BDs vs. Independent/Reg’l BDs – Post Crisis
Growth via Independent BDs Outpacing Nationals as
More Firms Continue to Diversify Distribution Footprint
National BD vs. Independent/Reg'l BD
Annual Sales Growth (%)
30%
30%
National BD
Independent/Reg'l BD
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
-10%
-10%
-15%
-15%
-20%
-20%
2007
Source: SI Fund Sales Survey
2008
2009
2010
2011
RIAs – Fastest Growing Standalone Channel In Three*
of the Past Four Years, Although Still from a Small
Base for Many Firms
Annual Sales Growth (%):
RIA Channel vs. Aggregate Across All Channels
30%
30%
RIA Channel
All Channels
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
-10%
-10%
-15%
-15%
2007
Source: SI Fund Sales Survey
2008*
2009*
2010
2011*
RIA Channel – Continued Potential Opportunity,
but Inherent Challenges Remain
 Fastest-growing standalone channel since 2007 among our
peer group of traditionally BD-focused fund managers
 Challenges for sustaining growth within RIA channel remain





Unique investment needs and sophistication
Geographic and philosophical diversity
Existing allegiances to specialized and boutique managers
Higher preference for ETFs
And more…
 For many firms, still ongoing process in evolving to proactive
rather than reactive engagement of RIAs
 But increasing number of firms progressing in building longer-term
trust and lasting presence
New Data Coming from SI to Help You Better Assess the
Intermediary-Sold Marketplace – Including RIA Demand
Trends by Category vs. Other Channels, Overall Industry
RIA Channel
Top Five Net Inflow Lipper Classifications - YTD April 2012
$5.3
Emerging Markets
$5.3
$21.3
RIA Channel
$4.0
Large-Cap Growth
$4.0
$6.7
Overall Industry
$4.0
High Current Yield
Intmdt Inv Grade
$2.3
Equity Income
$2.1
$0
$5$1
$4.0
$26.1
$2.3
$30.7
$2.1
$13.1
$10 $2
$15 $3 $20
$4$25
($Billions)
Flows ($Billions)
Net Flows
Net
Source: Access Data, a Broadridge company / Strategic Insight / SI Analysis
$5
$30
$6
$35
As Well As ETF Usage by Category Across Industry
Segments – Similarities, Differences by Channel and/or
Individual Distributor?
RIA Channel - Mutual Fund vs. ETF Flows within
Top Five Net Inflow Lipper Classifications - YTD April 2012
% of Net Flows to Mutual Funds
% of Net Flows to ETFs
100%
18%
90%
80%
31%
39%
35%
51%
70%
60%
50%
82%
40%
30%
69%
61%
65%
49%
20%
10%
0%
Emerging
Markets
Large-Cap
Growth
High Current
Yield
Intmdt Inv
Grade
Source: Access Data, a Broadridge company / Strategic Insight / SI Analysis
Equity Income
Share Class Pricing Trends Reflective of Shifting
Distribution Landscape – Profitability Challenges;
Marketplace Eliminating Need for Remaking 12b-1?
Sales by Share Class as a Percentage of Total Sales
60%
2009
55%
2010
2011
50%
% of Total Gross Sales
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
No Load
"A" at
NAV*
Level-Load "A" at 2-4% "A" at 4% "A" at below "B" Shares
Load*
or greater
2% Load*
Load*
*Only among firms providing breakdowns of "A" share sales.
Source: SI Fund Sales Survey
No Load Growth Spurred by Increasing “Retailization” of Traditionally Institutional Shares
No Load Share Sales via Wrap Programs & IODC Plans
as a Percentage of Total No Load Share Sales*
Wrap/Fee-Based Advisory Programs
IODC Plans
Other
70%
70%
60%
47%
50%
40%
30%
60%
55%
51%
39%
34%
27%
50%
40%
30%
27%
23%
27%
21%
20%
17%
30%
20%
10%
10%
0%
0%
2008
2009
*Among the 24 firms in 2011, 26 firms in 2010, 22 firms in 2009 and 15 firms in
2008 providing breakdowns of No Load sales via Wrap and IODC.
Source: SI Fund Sales Survey
2010
2011
Fee-Based Programs – Demand for Lowest-Cost Share
Classes a Key Driver of Increasing No Load Sales
Proportional Sales Through
Wrap / Fee-Based Advisory Programs by Share Class
80%
"A" Shares at NAV
67%
70%
60%
59%
57%
70%
60%
51% 49%
50%
40%
80%
No Load Shares
50%
43%
41%
33%
40%
30%
30%
20%
20%
10%
10%
0%
0%
2008
2009
*Among the 20 firms in 2011, 21 firms in 2010, 17 firms in 2009 and 15 firms in 2008 providing
breakdowns of No Load and "A" at NAV sales via Wrap/Fee-Based Advisory Programs.
Source: SI Fund Sales Survey
2010
2011
Dominant Majority of Fee-Based No-Load Sales Coming
via Shares without 12b-1 Fees – Accelerating Proportion
of Total Shareholder Cost Migrating Outside of Fund TER
No Load Shares Proportional Sales Breakout
within Wrap / Fee-Based Advisory Programs
100%
No Load Shares w/12b-1 Fee
No Load Shares w/out 12b-1 Fee
90%
87%
83%
80%
100%
90%
80%
72%
70%
70%
60%
60%
50%
50%
40%
40%
30%
28%
30%
17%
20%
13%
20%
10%
10%
0%
0%
2009
2010
*Among the 22 firms in 2011, 25 firms in 2010 and 17 firms in 2009 providing
such breakdowns of No Load share sales via Wrap/Fee-Based Advisory Programs.
Source: SI Fund Sales Survey
2011
Investment Only DC Sales Also Increasingly Coming
via No Load Shares
Proportional Sales by Share Class Through
Investment Only DC Plans
"A" Shares at NAV
No Load Shares
Other Share Classes (Level-Load, etc)
70%
63%
57%
60%
58%
70%
60%
52%
50%
50%
40%
40%
30%
27%
26%
26%
22%
20%
17%
30%
24%
16%
13%
20%
10%
10%
0%
0%
2008
2009
*Among the 23 firms in 2011, 25 firms in 2010 and 22 firms in 2009 providing
breakdowns of No Load and "A" at NAV share sales via IODC.
Source: SI Fund Sales Survey
2010
2011
A Few Key Intermediary-Sold Distribution
Considerations Moving Forward
 Continued expansion of fee-based sales – opportunities but also
challenges
 Rising costs, shifting share class demand, shrinking holding periods contributing to
evolving economic reality
 Increasing asset longevity risk – centralized decision-making vs. more
heterogeneous FA/investor pools
 Increasing importance of diversified distribution footprint
 Decreasing reliance on handful of large (and often most expensive) distribution
partners
 Accelerating demand for lowest cost share class
 Increasing migration of shareholder cost to outside fund expense ratio
 Fund profitability dilemma – managing retail distribution costs within shares priced for
institutional use
 Regulatory implications – marketplace forces solving need for radical remake of Rule
12b-1?
Coming to Simfund MF Q4’2012: Comprehensive
Intermediary-Sold Distribution Data – Helping You
to Navigate a More Complex Marketplace
 Monthly assets and net flows available by Distributor and by
Distribution Channel for mutual funds and ETFs
 National BDs, Independent BDs, Regional BDs, RIAs, Bank BDs, Bank
Trusts, and more
 Integrating new data into existing Simfund analytics to create a
more powerful and comprehensive tool
 Holistic product + distribution data solution
 Ability to leverage existing classifications, performance, fee, and other data
 Unique strategic tool to help your firm identify opportunity and
leverage data-driven analytics to advance strategic distribution
initiatives
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