Third Party Distribution

Definition of ' Third- Party Distributor'

The name given to inst itutions that sel l or distribute mutual funds
and Life- Insurance Policies to investors for fund management and
Insurance companies respect ively wi thout direct relat ion to the
fund itsel f. For mediating these transactions, thi rd- party
distributors receive a port ion of the trailer fees associated with
mutual fund sales and Corporate commission for acquiring new
business.
 Mutual funds and third
party distributi
Distribution of Mutual Funds on

Mutual funds are sold through five principal

distribution channels:

 (1) the direct

channel,
 (2) the advice
channel,
 (3) the retirement plan
channel,
 (4) the supermarket
channel,and
 (5) the
institutionalchannel.
 Direct
Channel

In the direct channel, investors buy and redeem shares directly from
the fund or, more precisely, through the fund’s transfer agent. The
fund company sponsoring the fund does not provide investment
advice, so investors must undertake their own research to choose
funds. Fund companies selling directly to investors provide a variety of
products and tools to assist in decisionmaking.
Advice Channel

The principal feature of the advice channel is

the provision of investment guidance,
assistance, and advice by financial
professionals. These
include full-service brokers at national wirehouses,
independent financial planners and advisers,
registered sales representatives at banks and
savings institutions, and insurance agents. Such
advisers help fund shareholders identify financial
goals such as retirement, tax management,
education savings, and estate planning. They
assess the
risk tolerance of their clients and select mutual
funds and other investments to meet these
goals.
Retirement Plan
Channel

Employers sponsoring defined contribution

plans rely upon third parties to administer
the
plans and provide plan investments to employees.
The third-party administrator (TPA) typically
handles the recordkeeping and other administrative services and assists
the employer in the selection of the investment options
offered to employees. Investment options typically include mutual funds,
guaranteed investment contracts, stable value funds, and company
stock.
Supermarket Channel

The most important feature of a fund supermarket is its non

transaction- fee (NTF) program, whereby an investor may purchase
mutual funds with no transaction fees from a large number of fund
companies. The NTF offerings at a discount broker often number
in
the thousands, providing an investor the convenience of purchasing
“noload” funds from different families at a single location.
Institutional Channel

The institutional channel comprises a variety of

institutions purchasing fund shares for their own
accounts. These institutions include businesses,
financial institutions, endowments, foundations,
and state and local governments. Fund
sponsors often create special share classes or
funds for institutional investors.
Channe
l