July 2, 2001
Despite the increasing popularity of exchange-traded funds and wrap accounts, mutual fund supermarkets are poised to thrive through at least the next two decades, an industry consultant said.
The boon will be fueled in no small part by Baby Boomers who, having liquidated assets such as homes, small businesses and stock options as they enter their retirement years, will likely turn in droves to mutual funds to invest those assets, said Chip Roame, a financial industry consultant with Tiburon Strategic Advisors.
Roame, speaking at the Institute for International Research's Maximizing Mutual Fund Supermarkets conference, said Boomers, now ages 36 to 56, are currently in their peak earning years, a trend that will continue for the next two decades.
And as they retire, America's largest population segment is likely to turn to two investment industry channels that tap directly into supermarket platforms, he said. Retiring investors will opt for what Roame calls the "do-it-yourself" model, buying mutual funds online using supermarket platforms provided by the likes of Charles Schwab, E-Trade and Fidelity. Or they will enlist the help of financial advisors, who will turn to those same supermarkets to buy their clients' products.
"I'd like to be anywhere in the investment industry when that happens," Roame said.
Indeed, those companies that provide access to supermarkets through multiple channels-i.e., online and investment advisors-are thriving among retail clients. Schwab, the largest multi-channel broker, had $560 billion in those assets at the end of 1999, compared to E-trade, the industry's largest online-only broker, which had $45 billion in assets from retail clients, Roame said.
The allure of supermarkets, platforms that allow individual investors and financial advisors to shop for scores of mutual fund products offered by various companies, lies in their vast selection and ease-of-access through the Internet, Roame said.
And although many investors will not seek advice regarding their assets, as supermarkets boom, Roame sees tremendous opportunity for financial advisors. Only 17% of Americans have investments and an advisor, he said, while 46% are invested in some sort of vehicle, but get no professional advice.
Roame said America's wealthiest, those with incomes of greater than $225,000 or net worth greater than $3 million, will increasingly be "self-made" rather than gaining their assets through inheritance or corporate jobs. Forty-six percent of those in that wealth category earned their money through small businesses, Roame said. And, as they sell those businesses, they will increasingly look to investment advisors for the best ways to manage their money, he said.
Roame makes these predictions in the face of declining assets held in online brokerage accounts. During the first quarter of this year, assets in those accounts declined to $875 billion from a high of $1.1 trillion during the third quarter of last year. But those declines are the result of poor market performance, he says, adding that investors are continuing to open new accounts despite the market' s downturn.
But mutual funds won't get all of the assets of retiring boomers. Separate accounts and alternative investments such as hedge funds will also see substantial inflows, he said.