Mutual Fund Distributors

Role of Mutual Fund Distributors

A mutual fund distributor is an entity responsible for marketing and selling the shares of a mutual fund company.  These mutual fund distributors are also known as underwriters for the fund.  The distributor is responsible for the following:

• Creating prospectus for the mutual fund
• Develop extensive marketing campaigns (tv, internet, magazine)
• Sell the shares directly to the public
• Provide a wholesale market to reach a larger number of investors

Selling Mutual Funds

The selling of mutual funds is a business all to itself.  Unlike hedge funds, mutual fund companies go on extensive marketing campaigns to sell their services.  It is up to the mutual fund underwriter to get the word out about the fund in order to generate buzz on the street.  Large mutual fund companies like Fidelity or Vanguard sell their own funds.  However, the smaller startup outsource these tasks to mutual fund distributors.  Another service mutual fund underwriters can help with smaller firms is getting them listed in mutual fund supermarkets.  These supermarkets are the Wal-Mart of investing.  Large brokerage firms  like Charles Schwab and TD Ameritrade will list the newly formed fund with thousands of other funds to their brokerage clients.  These active traders will have the ability to buy and sell any fund on the list in real-time.  This gives the start-up fund the ability to gain access to large pools of monies without having to run expensive marketing campaigns.

Whole sellers and Mutual Funds

Some funds will elect to partner with major banks to sell their funds.  This allows the fund to have maximum exposure, but to have a more direct selling opportunity than mutual fund supermarkets.  This practice is much like insurance, where a client can purchase the same insurance package from a number of independent sales representatives.  Once a bank is able to sell a fund to a client, the mutual fund would provide some sort of compensation.