Fund supermarkets in the US 2007

Fund supermarkets in the US 2007 examines developments in the US fund supermarket sector and assesses the distribution channels that are in operation. The report analyzes both the current and possible future trends of the industry.

Report Highlights

In 2001, mutual fund purchases by distribution channel were approximately 48% through retirement plans, 37% through sales force outlets such as brokers, financial advisors, and insurance brokers, 10% by direct sales by funds, and 5% through fund supermarkets. The increase in retirement plans has led to an increase in the use of fund supermarkets. Many online brokers offer their own retirement plans, while investors who use an independent financial advisor for their retirement needs will often find that the advisors themselves use fund supermarkets as an efficient means of fund purchase and management. Fidelity is the leading US fund supermarket, offering a total of around 4,600 funds, from around 420 host suppliers including Fidelity itself. The Fidelity.com site offers approximately 222 Fidelity funds, segmented into approximately 60% stock funds, 25% bond funds, 10% international funds, and 5% money market funds.
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Overview 1

Catalyst 1

Summary 1

Executive Summary 2

Mutual funds were the largest segment of the US retail savings and investment market in 2006, representing 39% of the total; fund supermarkets account for a growing proportion of mutual fund sales 2

The market size for US mutual funds has remained steady at around one third of the US retail savings and investments market since 2002 2

The US dominates the global market for mutual funds 2

Stock funds dominated the US mutual fund market in 2006 2

The average US fund supermarket customer is middle-aged with an above-average income 2

Mutual funds are among the most strictly regulated financial products in the US 2

Fidelity is the leading US fund supermarket 3

TD Ameritrade supplies funds solely from external suppliers 3

TD Ameritrade also offers a certain level of portfolio• guidance 3

Charles Schwab is one of the largest fund providers in the US 3

FolioFn is a smaller service than its competitors 3

Fees and charges have been driven down by competition 4

Distribution Dynamics 7

The market size for US mutual funds has remained steady at around one third of the US retail savings and investment market since 2002 7

Mutual funds were the largest segment of the US retail savings and investment market in 2006, accounting for 39% of the total 7

Retail mutual funds accounted for almost 90% of the US mutual fund market in 2006 8

Equity funds dominate the US retail mutual fund market 9

The US dominates the global market for mutual funds 9

Investor demand is increasing 9

Multiple distribution channels have increased competition 10

Fund supermarkets have seen significant growth 10

Fund supermarkets have a number of distinct advantages 11

Stock funds dominated the US mutual fund market share in 2006 12

Retirement plans are the fastest-growing mutual fund purchase source in the US 12

Hybrid mutual fund sales fell between 2005 and 2006, but all other classes saw a rise in new sales 13

The average US fund supermarket customer is middle-aged with an above-average income 14

84% of US households have an income below USD100, 000 14

Around a third of households with an income of USD100, 000 or more own mutual funds 15

The number of US households owning mutual funds has remained stable over the past 6 years 15

The number of US individuals holding mutual funds has increased by 5 million since 2000 16

The number of fund-owning households with internet access has grown by around 42% since 2000 16

Almost 80% of fund-owning households with internet access used the internet for a financial purpose in 2006 17

Distribution Forecasts 18

Retail mutual funds will continue to account for around 40% of the total US retail savings and investments market for the next 5 years 18

Regulatory climate 19

Mutual funds are one of the most strictly regulated products in the US 19

The Mutual Fund Transparency Act of 2005 aimed to increase disclosure 20

There have recently been calls for further mutual fund disclosure 20

The US is cracking down on online systems failures 21

Distributor Profiles 22

Fidelity is the leading US fund supermarket 22

Fidelity offers one of the widest ranges of funds 22

Fidelity's charging structure for non-Fidelity funds is higher than some other discount brokerage sites 22

Fidelity offers a wide range of core services 23

In addition, Fidelity offers flagship Asset Management services 23

Fidelity is a successful private business 25

The Fidelity website offers high functionality 26

Fidelity has a separate website for advisors 27

TD Ameritrade supplies funds solely from external suppliers 27

TD Ameritrade offers some of the highest quantities of funds 27

TD Ameritrade offers a competitive fee structure 27

TD Ameritrade offers a range of basic trading services 28

The site offers a multitude of additional services 28

TD Ameritrade also offers a certain level of portfolio guidance 29

TD Ameritrade is owned by Ameritrade Holding Corporation 29

TD Ameritrade is directed at the mass market 30

TD Ameritrade offers fewer options of account structures than some of its competitors 30

Opening an account is extremely simple 30

Charles Schwab is one of the largest fund providers in the US 30

Charles Schwab offers some of the highest quantities of funds through its online brokerage 30

Schwab does not charge fees on its own funds 31

Schwab offers a wide range of core services 32

Charles Schwab offers a number of additional services including a detailed portfolio service 33

Schwab Portfolios are designed for diversification 34

Schwab MarketTrack Portfolios are designed to match investor tolerance for risk 35

Charles Schwab provides a full range of financial services 36

Schwab.com is extremely user-friendly 36

Schwab offers a specialist service for advisors 36

Opening an account with Schwab is easy 37

FolioFn is a smaller service than its competitors 37

FolioFn offers far fewer funds than the larger brokers 37

FolioFn offers extremely competitive pricing 37

FolioFn offers a number of core brokerage services 38

FolioFn offers a particular type of service based around its proprietary Folio products. 39

FolioFn operates as an independent company 40

FolioFn's internet functionality is limited by its size 40

FolioFn has developed a new tool for intermediaries 40

FolioFn is one of the easiest accounts to open online 41

Fees and charges have been driven down by competition 41

Fund supermarkets reduce the burden of fees on mutual fund companies 42

APPENDIX 43

Definitions 43

Brokerage Firms 43

Fund Supermarkets 43

Mutual Funds 43

Online Broker Ratings/Rankings 44

Prospectus 44

Methodology 44

Further reading 44

Ask the analyst 44

Datamonitor consulting 45

Disclaimer 45
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Table 1: Overview of the retail savings and investments market in the US 2001-2006 7

Table 2: Total mutual funds under management segmented by investor 8

Table 3: Retail mutual funds under management segmented by type of fund 9

Table 4: Principal features of mutual fund distribution channels in the US 11

Table 5: Total Net Assets of Mutual Funds in the US, December 2005-2006 12

Table 6: Share of Mutual Fund Assets by distribution channel in percentages, 2002 12

Table 7: Net New Cash Flow of Long-Term Funds in the US, December 2005-2006 13

Table 8: Income ranges in the US per household, 2006 14

Table 9: Percentage distribution of households owning mutual funds and all U.S. households, by income, 2006 15

Table 10: Number and Percent of US Households owning mutual funds, 2000-2006 15

Table 11: Individual US Investors owning mutual funds 16

Table 12: Number and percent of fund-owning households with Internet access 16

Table 13: Percent of fund-owning and non-fund-owning households with Internet access, by online activities in past 12 months, 2006 17

Table 14: US retail savings and investment balances forecasted 2007-2011, segmented by broad product line 18

Table 15: Some Leading US Fund Supermarkets at a Glance 22

Table 16: Fidelity short-term trading fees 23

Table 17: Fidelity Target Asset Mix by portfolio allocation 24

Table 18: Fidelity Target Asset mix by historic returns 25

Table 19: Range of available Fidelity.com accounts 26

Table 20: TD Ameritrade fee structure 28

Table 21: Amerivest portfolio guidance 29

Table 22: Funds offered by Charles Schwab, by segment 31

Table 23: Charles Schwab fee structure 31

Table 24: Schwab account minimum balance requirements 32

Table 25: Schwab portfolios 33

Table 26: Schwab portfolios by stock allocation 34

Table 27: Schwab portfolios by historic return 35

Table 28: Schwab MarketTrack portfolios by stock allocation 35

Table 29: FolioFn Pricing Structures 37

Table 30: FolioFn Service fee structure 38

Table 31: FolioFn product range 39



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