Front-End Load Mutual Fund Decline Continues

Actively managed mutual funds attracted significant adviser-intermediated assets during the first half of 2017, but money is quickly flowing out of non-institutional active share classes. 

“Advisers invested client assets in actively managed funds in the first half of 2017, but net new flows were driven entirely by low fee and institutional priced share classes,” according to new data released by Broadridge Financial Solutions.

The data focuses on the investing behavior of independent broker/dealers and wirehouse firms, which added net new assets of $150 billion and $40 billion, respectively, into institutionally priced actively managed funds during the first two quarters of 2017. These advisers serve clients beyond defined contribution (DC) retirement plans, but the trends in the data are clearly impacting the retirement savings marketplace.

“The majority of these positive flows were the result of conversions out of load funds,” Broadridge researchers explain. Particularly share classes A, B and C, “which decreased by $122 billion and $37 billion from independent and wirehouse broker dealers, respectively.”

Frank Polefrone, senior vice president of Broadridge’s data and analytics business, observes that actively managed funds saw positive flows during the first half of 2017, “even as advisers continue to invest client assets into passively managed exchange-traded funds and index funds at an increased rate. Net new asset flows into institutional shares of actively managed funds in the first half of 2017 is further proof that price and performance are the driving factors in adviser fund selection.”

Broadridge expects the move to lower fee share classes to continue throughout 2017 and beyond “as the majority of advisers move to a fee-based practice, and the broker dealer home office realigns the mix of share classes offered to meet both client demand and regulatory requirements related to the Department of Labor (DOL) fiduciary rule.”

“Virtually all net new assets in 2017 flowed to lower fee products,” Polefrone adds. “ETFs, index funds, and institutionally priced actively managed funds all drew significant assets.”

One clear result of the shift in adviser/client fee preferences is that fund manufacturers without a low-cost solution are, “at best, being ignored and at worst, getting trampled,” warns Jeff Tjornehoj, Broadridge’s director of fiduciary and compliance research. “While equity mutual funds have outflows of $69 billion collectively, those with an expense ratio of just 20 basis points or less have inflows of $93 billion.”

He says the “battle ahead is about how fund sponsors will accept a fraction of what they historically collected … Even channels that traditionally supported premium priced products, such as wirehouses and broker/dealers have shifted strategies based on fees.”

Additional research and information is available at