Broker incentives and mutual fund market segmentation
By: Diane Del Guercio, Jonathan Reuter, Paula A. Tkac
Contributors: Reuter, Jonathan; Tkac, Paula A.; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16312; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16312.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.  We study the impact of investor heterogeneity on mutual fund market segmentation.  To motivate our empirical analysis, we make two assumptions.  First, some investors inherently value broker services.  Second, because brokers are only compensated when they sell mutual funds, they have little incentive to recommend funds available at lower cost elsewhere.  The need for mutual fund families to internalize broker incentives leads us to predict that the market for mutual funds will be highly segmented, with families targeting either do-it-yourself investors or investors who value broker services, but not both.  Using novel distribution channel data, we find strong empirical support for this prediction; only 3.3% of families serve both market segments.  We also predict and find strong evidence that mutual funds targeting performance-sensitive, do-it-yourself investors will invest more in portfolio management.  Our findings have important implications for the expected relation between mutual fund fees and returns, tests of fund manager ability, and the puzzle of active management.  Furthermore, they suggest that changing the way investors compensate brokers will change the nature of competition in the mutual fund industry"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 10/28/2010.

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