Mutual fund sales, advice tilt toward fee-based model

Sales of mutual funds through brokers and financial advisers continued to shift toward fee-based compensation last year, while the trend toward fee-for-advice distribution accelerated, according to a study released last week by Strategic Insight Mutual Fund Research and Consulting LLC. Fund sales with a fee-based compensation model gained market share last year, especially in the fourth quarter, when fund wrap programs and sales through registered investment advisers were the two fastest-growing areas of the industry. In addition, fund share classes tied to advice that carry no front-end sales loads — no-load share classes or traditional Class A shares where the loads have been waived — were the biggest growth areas last year. The two categories accounted for 62% of new fund sales via intermediaries last year among study participants, up from 56% in 2007. The study was based on sales data from 27 large mutual fund companies that distribute primarily through advisers. The companies managed about half of U.S. open-end stock and bond fund assets as of the end of last year. “This report shows that advice in the mutual fund business is increasingly provided through fee-based accounts,” Dennis Bowden, a research analyst at New York-based Strategic Insight and the report's lead author, said in a statement. Even more telling is the fact that these trends accelerated during the fourth quarter, he said. “During that time, even more sales shifted to the channels and share classes offering fee-for-advice structures,” Mr. Bowden said. “The market turbulence of the past year has only increased mutual fund shareholders' need for more structured financial advice.” E-mail David Hoffman at [email protected].