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Retirement Plans Are Found to be Key


Retirement planning and retirement plans are key factors in mutual fund sales and offer an opportunity for growth for the industry, a new Investment Company Institute report suggests.

Fifty percent of mutual fund shareholders surveyed said that employer-sponsored retirement plans are the primary channel through which they purchase mutual funds, the report said. The ICI released its 1998 Profile of Mutual Fund Shareholders on Sept. 24. Thirty-eight percent of shareholders said they own funds solely through employer-sponsored retirement plans, according to the survey. Sixty-two percent of shareholders said they owned mutual funds in retirement plans, the report said.

In addition, 77 percent said that investing for retirement is their primary financial goal, according to the survey.

"DC [defined contribution] plans have become a very important source of investment," said Sandy West, director of market and policy research for the ICI.

The ICI report is the first in three years describing the profile of the typical mutual fund investor. Unlike the 1996 report, the ICI this time questioned individuals who invest through retirement plans at work. The report questioned shareholders on their preferences and investment practices, but did not track such factors as retirement plan sales.

The current study represents the results of a survey conducted in September and October of 1998. It is based on interviews with nearly 1,500 people who said they were the decision-makers with the most knowledge about savings and investments in their households.

The report included the following findings:

* Only 16 percent of those questioned said they purchased funds directly from a mutual fund company. Thirty-four percent said they primarily bought funds through sales representatives, including financial planners and full service broker/dealers.

* Women played a key role in deciding how to invest in 76 percent of the households that owned mutual funds. Women served as co-decision-makers in 54 percent of the households and sole decision-makers in 22 percent of the households.

* While baby boomers account for 51 percent of mutual fund shareholders, Generation X, those who were 18 to 33 at the time of the ICI survey, represent 22 percent of mutual fund shareholders. The so-called Silent Generation, age 53 or older at the time of the survey, constituted 27 percent of fund shareholders.

The report also suggested that retirement plans provide an opportunity for growth for fund companies. Of those surveyed, 77 percent participate in defined contribution retirement plans. Yet only 62 percent of shareholders hold mutual funds through those defined contribution plans. Although the report did not explicitly address the issue, anecdotal evidence suggests that retirement plan investors who did not select funds invest in an employer's stock or commingled trusts, West said.

Commingled trusts are pools of assets that are similar to mutual funds but are not available to the general public. The trusts usually have lower expenses than retail mutual funds.

The ICI's findings are consistent with other research on retirement accounts and mutual funds. Cathy McBreen, practice leader for retirement services at the Spectrem Group of San Francisco, an investment banking and research firm which tracks retirement plan issues, said that retirement plans have become the broadest means of distribution for mutual funds.

"It's the channel that reaches the most people," McBreen said. "This is something that reaches everybody."

Also, while trusts are popular among large employers, Spectrem has not seen a clear trend of those trusts increasing in popularity outside of their use by large employers, McBreen said.