Fund Industry Has Low Profits Per Customer
December 20, 1999
Profits per customer in the mutual fund industry are the second lowest among financial services, a recent study shows. The study, conducted by Andersen Consulting of Chicago, examines the revenues, costs and profits per customer in the banking, brokerage, mutual fund, mortgage and credit card industries. On average, mutual fund companies make $80 in profit per customer, the second lowest of all financial services, the study shows. Average cost per fund customer is $174 while the average revenue generated per customer is $254.
Profits per customer in the other financial sectors surveyed were; Mortagage firms, $395; mid-size banks, $153; small banks, $108; self-service brokers, $114; full-service brokers, $179; and credit card firms, $31.
In 1998, revenues per mutual fund customer increased 19 percent, costs grew 22 percent and profit climbed 12 percent from the previous year, the study shows. The study attributes the increase in revenues to the rising stock market that prompted more investors to put money into mutual funds. The study cites increased competition and a drive to create brand awareness as reasons for the increase in costs.
Although these numbers are compelling, fund companies' per customer profits are not a good measure of the health of the mutual fund industry, according to Ranier Famulla, a partner with Andersen Consulting. Famulla helped design the study.
"If there is high per customer profitability in an industry, I would not necessarily call that a better business," said Famulla.
Mortgage firms had the highest per customer profit of all sectors but there are normally fewer transactions per customer, limiting the growth potential in the sector, he said.
Even though per customer profits are relatively low in the mutual fund industry, the industry's growth potential makes it a strong sector, Famulla said.
"The mutual fund industry has been on a healthy run for the past few years," Famulla said. "It is a business that is still going up and I wouldn't worry about that in the next three to four years."
The study is designed to provide a uniform measure of financial sector performance based on customer-oriented data, according to Famulla. As the financial service industry consolidates, customer data will provide an apples to apples' comparison of different sectors, Famulla said.
Famulla said the study results represent a cross-section of the mutual fund industry based on nine fund companies ranging in size and type of service. The data on per customer cost, revenue and profit was provided by each company and is based on full fiscal years from 1995 to 1999.
This is the first year Andersen Consulting has published its survey results.