Research provides in-depth look at distribution of mutual fund load structures across wealth groups
Mutual-fund investors are apparently shifting away from holding DSC funds in their portfolios, though DSC funds appear to be disproportionately held by mass-market clients.
In its newly released Client Research Report 2020, the Mutual Fund Dealers Association of Canada (MFDA) said that from 2016 to 2018, assets held in investment funds by MFDA clients rose from $603 billion to $648 billion.
The SRO found that over that period, DSC fund assets held by MFDA-advised clients decreased by 31% from $110 billion to $76 billion “given the general trend within the industry to limit or prohibit their sale.”
“Clients also held approximately $1 billion in other investment products with an MFDA Member that were subject to a DSC fee structure (predominantly segregated funds but also principal protected notes),” the report said.
Looking at assets in other mutual fund load structures, the report found that as of 2018, MFDA clients had $8 billion in low-load funds, $123 billion in front-end load funds, $34 billion in F class mutual funds, and $67 billion in non-embedded mutual funds. The greatest share of assets under administration went to no-load funds, amounting to $340 billion and representing an estimated 53% of all investment funds’ AUA in 2018.
“While non-embedded and F-class funds comprise only 16% of all investment fund AUA, they experienced the greatest growth since 2016 increasing by 53% or by $35 billion,” the report said.
Looking at how different load structures were distributed within wealth segments of households served by financial advisory firms, the report found that DSC funds held by clients decreased across all segments. The amount of DSC funds held in client households, it added, decreased with increasing financial wealth.
“Mass-market clients continue to have the highest concentration of DSC funds (33%),” the report said, referring to households with less than $100,000 in cash and investments held with or recorded on the books of MFDA Members.
The MFDA has reported that it plays a crucial role in servicing Canadian mass-market investors.
The percentage of assets held in DSC funds declined to 22% among households that had between $100,000 and $250,000 in financial wealth; 17% among households with $250,000 to $500,000 in financial wealth; and 11% among those with more than $500,000.
“Front-end load funds were the most prevalent type of fund for clients regardless of household financial wealth asset levels within the Financial Advisory channel,” the report said. The share of assets in front-end load funds ranged from 45% among households with more than $500,000 in reported wealth to 55% among mass-market households.
“This shift to front-end load funds is ongoing as our experience indicates that advisors switch 10% of DSC funds annually and the balance of DSC units upon expiration of the DSC redemption schedule to front-end load funds on a no load basis,” the report said.