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Supermarkets Show Signs of Weakness

Sales of mutual funds through supermarkets in 1998 seemed to follow the trends of the industry as a whole- there was a drop in sales during August, but they rebounded strongly by the end of the year.

However, some industry observers say that consumer interest in supermarkets has peaked and could be headed for a downturn. In particular, they cite a greater desire among consumers to buy mutual funds through investment advisors in order to obtain guidance in deciding on which funds to buy.

Companies are reluctant to disclose their supermarket sales. But, the sales of Charles Schwab's supermarket, the industry leader, could reflect an overall trend in the industry, said Avi Nachmany, director of research for Strategic Insight, a research and consulting firm in New York. Nachmany said that there is an overall decline in direct sales of mutual funds, including supermarkets, and more people want to buy through intermediaries.

Total net asset inflows at Schwab grew from $14.149 billion in 1996 to $15.487 billion in 1997, said Greg Gable, a Schwab spokesperson. But, in 1998 the number fell to $10.879 billion, said Gable. There were net outflows in August- in response to the market downturn at the time- followed by slow growth in September and October, he said.

The number of supermarkets has risen, but their assets are not growing at the same rate, said Geoffrey Bobroff, president of Bobroff Consulting, a research and consulting firm in East Greenwich, R.I.

"The number of people who are self-directed or self-motivated, who use the supermarkets, has stayed constant," Bobroff said. "Assets through the supermarkets are growing but at a more moderate rate than the industry would like to admit."

Consumers have been switching towards using intermediaries - such as registered investment advisors - to help them invest, said Andrew Guillette of Cerulli Associates.

"The larger trend is that people are seeking intermediaries to help them make their decisions, and the direct-marketed business is plateauing," Guillette said.

A study, conducted last year and released this month of 2,000 mutual fund owners, found that many of them would like to use a supermarket. But, they were about evenly split as to whether they want to pay more for professional advice provided by the supermarket, the study found.

The study, conducted by the Spectrem Group, a research and consulting firm based in San Francisco, asked which of three approaches the fund owners would prefer if they had $25,000 to invest in mutual funds- a supermarket with consolidated statements, continuing professional advice, and a flat three percent annual fee with no other fees or loads; a supermarket with consolidated statements, no professional advice, but a lower 1.5 percent annual fee; or, choosing their own funds, with no financial advisor, and paying whatever fees and loads are required by the funds they select.

About 35 percent opted for the first approach, 34 percent the second, and 29 percent the third. The balance did not respond.

While Schwab's overall supermarket sales numbers were down for the year, the sale of Schwab's own funds, which are only sold through its supermarket, showed a steady increase throughout 1998. Net inflows to Schwab funds were $1.1 billion in 1996, $2.4 billion in 1997 and $4.6 billion in 1998. In an effort to maintain its dominance of supermarket sales, Schwab has been revising its web site and improving its online trading capacity. Gable said that 35 percent of Schwab's sales are online transactions.