As a firm prepares to launch a mutual fund, it’s crucial to establish a solid distribution strategy. ACA Group, which offers governance, risk and compliance support, recently offered a guide for intermediary channels for mutual fund distribution.
Mutual funds can be distributed through two main channels. The Direct Channel allows investors to buy shares directly from the fund company via the transfer agent or a fund platform. The Intermediary Channel, on the other hand, involves third parties like broker-dealers, banks, or registered investment advisers (RIAs) who help facilitate transactions.
The preference for intermediary channels is high among consumers who value the guidance these entities provide in navigating the complex investment landscape. Intermediaries offer crucial services such as investment advice, access to diverse investment options, and consolidated purchasing points for multiple products, enhancing the post-purchase experience by handling regulatory filings and report submissions on behalf of the fund.
Intermediaries form various agreements with mutual fund companies and advisers based on their business models and compensation needs. Those relying on sales loads and 12b-1 fees typically form selling agreements with the fund’s principal underwriter, while others may opt for operating agreements to manage different types of compensation.
Broker-dealers, who are regulated by the SEC and FINRA, play a vital role in this ecosystem. They range from small boutique firms to large international institutions, offering clients a broad array of services from financial advice to investment banking. The most prominent wirehouses include Bank of America’s Merrill Lynch, Morgan Stanley, UBS, and Wells Fargo Advisors.
Regionals and independents offer more tailored services, often focusing on specific geographical areas or providing more autonomy to their financial advisers. Firms like Edward Jones, RBC Wealth Management, and Stifel are notable regional players, while LPL Financial LLC and Raymond James Financial stand out among independents.
RIAs and banks also serve as intermediaries, with RIAs often facilitating transactions through mutual fund complexes or supermarkets, and banks offering funds through trust departments or referrals. Clearing firms, too, are integral, ensuring the smooth execution of transactions through their platforms accessed by broker-dealers.
If launching a mutual fund is your goal, our Mutual Fund Distribution Guide is an invaluable resource. Contact us to begin your journey with the support of ACA Foreside, which distributes over $1.1 trillion of mutual fund products and offers comprehensive broker-dealer frameworks and regulatory technology solutions to enhance your fund’s growth and compliance.
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