The retail and institutional organizations which have been able to attract the greatest asset flows now straddle the industry, managing money for clients in all formats and making their products available by all distribution means available. Mutual fund supermarkets and brokerage mutual fund wrap accounts are forming to compete with the largest scale distributors. The use of brand marketing techniques is increasing. Commercials for asset managers are more frequently seen on television, as firms reach for a mass clientele. With perfect information, an investor or fiduciary would ignore advertising and search for favorable risk adjusted returns and low costs.
Mutual funds are a relatively expensive vehicle.
Institutional management fees are often half the rates charged by mutual funds for similar styles and mandates. The sensitivity of fiduciaries to cost raises an interesting alternative to the view that industry consolidation will be led by mutual fund managers. We can foresee the possibility of cloned institutional accounts arising to compete with mutual fund formats, driving equity management fees from 100bp to 50bp in the process. Given the trend of large distributors to establish brands and concentrate industry assets, it would seem unlikely that smaller firms with less control of distribution could establish market share. Yet, many firms find the means to grow.