Ownership of mutual funds has grown significantly over the past quarter century. Nearly half of all U.S. households owned mutual funds in 2006, compared with less than 6 percent in 1980 (Figure 6.1). The 96 million individuals who own mutual funds include many different types of people with a variety of financial goals. Fund investors purchase and sell mutual funds through four principal sources: professional financial advisers, such as full-service brokers and independent financial planners; directly from fund companies; employer-sponsored retirement plans; and fund supermarkets.

Individual and Household Ownership

An estimated 96 million individual investors own funds, and hold 87 percent of total mutual fund assets. Altogether, 55 million households, or about half of all U.S. households, own funds (Figure 6.1).

Mutual funds represent a significant component of many U.S. households' financial holdings. Among households that own mutual funds, the median amount invested in mutual funds is $48,000 (Figure 6.2). The majority of mutual fund shareholders are married or living with a partner, and most are college graduates. More than three-quarters of all fund investors work full- or part-time.

Figure 6.1

About Half of U.S. Households Own Mutual Funds

(millions of U.S. households owning mutual funds, selected years)

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Sources: Investment Company Institute and U.S. Bureau of the Census (Fundamentals, "Ownership of Mutual Funds and Use of the Internet, 2006") and( Profile of Mutual Fund Shareholders, Fall 2004)

Figure 6.2

Fund Ownership by Age and Income

The incidence of ownership of mutual funds is greatest among households headed by individuals age 35 to 64 years—the group considered to be in their peak earning and saving years (Figure 6.3). About half of all shareholders are members of the Baby Boom Generation (born between 1946 and 1964), and nearly one-quarter are members of Generation X (born between 1965 and 1976). The median age of all U.S. mutual fund shareholders is 48.

Figure 6.3

Incidence of Mutual Fund Ownership Greatest Among 35- to 64-Year-Olds

(percent of U.S. households within each age group* owning mutual funds, 2006)

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*Age is based on individual heading the household.
Source: Fundamentals, "Ownership of Mutual Funds and Use of the Internet, 2006"

The incidence of mutual fund ownership increases with household income (Figure 6.4). About three in five fund investors have household incomes between $25,000 and $100,000. Shareholders' median household income is $68,700.

Figure 6.4

incidence of Ownership of Mutual Funds Increases With Household Income

(percent of U.S. households within each income group* owning mutual funds, 2006)

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*Income ranges are based upon previous year's pretax household income.
Source: Fundamentals, "Ownership of Mutual Funds and Use of the Internet, 2006"

Where Individuals Own Mutual Funds

Although mutual funds play a key role in both the long- and short-term savings strategies of many U.S. households, nearly three-quarters of fund investors indicate the primary financial goal for their fund investments is saving for retirement. Thus, many investors hold funds in workplace retirement plans, IRAs, and other tax-deferred and taxable accounts.

Inside Defined Contribution Retirement Plans

Since 1990, retirement plans at work have become one of the most common sources through which individuals invest in mutual funds. Indeed, many of today's mutual fund owners were introduced to mutual fund investing through 401(k) and other retirement plans at work. In 2004, nearly 60 percent of shareholders indicated they purchased their first fund from a defined contribution retirement plan, up from 47 percent in 1998. In total, 23 percent of households' mutual fund holdings are held in employer-sponsored retirement plan accounts.

A large number of shareholders consider defined contribution retirement plans their primary source for mutual funds. Nearly 60 percent of all shareholders viewed these plans as their main fund purchase source, up from about half of all shareholders in 1998.

Figure 6.5

Where Do Shareholders Own Mutual Funds?

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1Professional financial advisers include full-service brokers, independent financial planners, bank and savings institution representatives, insurance agents, and accountants.
2Other sources include fund companies directly, fund supermarkets, and discount brokers.
Source: Fundamentals, "Ownership of Mutual Funds Through Professional Financial Advisers"

Outside Defined Contribution Retirement Plans

Many mutual fund investors also own funds outside defined contribution retirement plans (Figure 6.5). Shareholders who own funds outside defined contribution retirement plans typically hold mutual funds in their investment portfolios for several years. On average, mutual fund accounts held outside retirement plans at work have been open for five years (Figure 6.6), and shareholders on average have had a relationship with the fund company offering the fund(s) for seven years (Figure 6.7).

Mutual fund investors often use funds to save for retirement outside workplace retirement plans. More than four in 10 shareholders hold funds in their IRAs. In many cases, these IRAs are funded through assets rolled over from 401(k) and other employer-sponsored retirement plans.

Figure 6.6

The Average Mutual Fund Account Has Been Open for Five Years

(percent of mutual fund accounts held outside employer-sponsored retirement plans, by age of account, year-end 2005)

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Figure 6.7

The Average Shareholder Tenure With a Fund Company Is Seven Years

(percent of mutual fund shareholders, by tenure of shareholder with the fund company, year-end 2005)

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Purchasing Funds Through Professional Financial Advisers

Among investors owning fund shares outside defined contribution retirement plans, more than 80 percent currently own fund shares through professional financial advisers, including full-service brokers, independent financial planners, insurance agents, bank or savings institution representatives, and accountants. Nearly half own funds solely through advisers, while another third own funds purchased from advisers as well as directly from fund companies, fund supermarkets, or discount brokers. Fourteen percent solely own funds purchased directly from fund companies.

Professional financial advisers offer investors a wide array of services in addition to helping them select and purchase mutual fund shares. Altogether, two-thirds of shareholders with ongoing advisory relationships indicate that they receive at least five distinct services from their primary advisers. The services that advisers provide may be grouped into two broad categories—investment services and planning services (Figure 6.8).

Figure 6.8

Shareholders Receive Numerous Investment Services from Professional Financial Advisers

(percent of respondents with ongoing advisory relationships, 2006)

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*Multiple responses are included.
Source: Fundamentals, "Why Do Mutual Fund Investors Use Professional Financial Advisers?"

Use of Investment Services. Investment services provided by advisers include, among other things, portfolio review, investment recommendations, and asset allocation review. Among the fund investors surveyed who have ongoing advisory relationships, more than eight in 10 say their advisers regularly assess their portfolios and give them investment recommendations. About six in 10 indicate their advisers help them allocate assets held in workplace retirement accounts.

While fund investors generally receive investment recommendations from their advisers, many also conduct independent research to confirm these recommendations. One-quarter of shareholders with ongoing advisory relationships "always" undertake their own research and more than four in 10 "sometimes" conduct their own research. Shareholders who take the lead in making investment decisions with their advisers are the group most likely to undertake their own research before accepting advisers' recommendations.

Use of Planning Services. Planning services provided by advisers include, among other things, periodic discussion of financial goals, suggesting strategies to help meet specific goals, and the development of a more comprehensive financial plan.

About 80 percent of investors who use financial advisers have periodic discussions of their general financial goals with their advisers, and three-quarters receive planning services for specific goals, such as retirement security and education saving. Three-quarters of fund investors with ongoing advisory relationships say they receive comprehensive financial planning assistance from their primary advisers, and six in 10 receive advice on how to manage their money in retirement. About half also indicate that they have access to tax planners and other specialists through their advisers. Shareholders with access to investment specialists tend to have high levels of assets; these investors want specialized services in areas such as charitable giving or wealth management.

Views on the Benefits of the Investor/Adviser Relationship. Generally, fund investors who chose to work with advisers indicate the relationship improves their chances of growing their money and gives them peace of mind about their investments. They cited several tangible benefits of the investor/adviser relationship, expressing the common theme among survey respondents that using professional financial advisers provides a level of expertise that enhances their investment decisionmaking.

Most shareholders with ongoing advisory relationships cite the need for guidance in understanding their total financial picture and allocating their assets across a range of investments (Figure 6.9). Many also require explanations of the wide variety of investment options as well as assessments of whether they are saving enough for retirement. For others, making sure their estate is in order is a major reason for the advisory relationship.

The extent to which investors delegate investment decisionmaking to their advisers appears to shape their perception of the value of the advisory relationship. ICI survey findings indicate that the more shareholders rely on their advisers for investment decisionmaking, the greater the value they place on the advisory relationship. For example, roughly three-quarters of shareholders who delegate or make investment decisions together with their advisers indicate they use advisers for their financial expertise. Among those shareholders who take the lead in investment decisionmaking, these reasons are less important in their motivation for working with professional financial advisers.

Figure 6.9

Shareholders Look to Advisers for the Expertise They Provide

(percent of respondents with ongoing advisory relationships indicating each is a "major" reason for using advisers,* 2006)

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*Multiple responses are included.
Source: Fundamentals, "Why Do Mutual Fund Investors Use Professional Financial Advisers?"

Shareholder Preferences for Fund Information

Over the years, ICI has surveyed investors about the mutual fund information they want to know before purchasing fund shares. Most recently, ICI conducted in-home interviews with more than 700 shareholders owning funds outside workplace retirement plans about their fund information needs. The study found that investors usually review a wide range of information before purchasing fund shares outside these plans. Most often, investors want to know about a fund's fees and expenses, its historical performance, and its associated risks prior to purchasing shares (Figure 6.10). In contrast, investors rarely review or ask questions about a fund's portfolio manager, board of directors, or proxy voting policies.

Figure 6.10

Shareholders Review a Wide Range of Information Before Purchasing Mutual Fund Shares

(percent of recent fund investors who reviewed or asked questions about each item before most recent fund purchase,1 2006)

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1Multiple responses are included.
2These items must be included in the front of the prospectus in the Risk/Return Summary.
Note: The confidence interval for these estimates is ± 3.6 percentage points at the 95 percent confidence level.
Source: Understanding Investor Preferences for Mutual Fund Information, August 2006

Shareholders rely heavily on professional financial advisers for fund information before purchasing fund shares. Nearly three-quarters of investors turned to professional financial advisers for fund information before their most recent share purchases outside workplace retirement plans (Figure 6.11). Professional financial advisers are a predominant source of fund information because most shareholders own funds through advisers and want their advisers to review and discuss the information with them.

Figure 6.11

Shareholders Most Often Consult Advisers for Mutual Fund Information Before Purchasing Shares

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*Multiple responses are included.
Source: Understanding Investor Preferences for Mutual Fund Information, August 2006 (www.ici.org/pdf/rpt_06_inv_prefs_full.pdf)

The Internet is another way that some shareholders access fund and other investment information. Today, more than nine in 10 households owning funds have Internet access, up from two-thirds in 2000, the first year in which ICI measured shareholders' access to the Internet. Paralleling the national pattern, the incidence of Internet access traditionally has been greatest among younger mutual fund shareholders (Figure 6.12). Increases in Internet access among older shareholder segments, however, has narrowed the generational gap considerably.

Figure 6.12

Internet Access Increases Significantly Among Mutual Fund Shareholders

(percent of households owning mutual funds with Internet access, selected years)

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Source: Fundamentals, "Ownership of Mutual Funds and Use of the Internet, 2006"

About eight in 10 shareholders who access the Internet go online for financial purposes, most often to obtain investment information or check their bank or investment accounts (Figure 6.13). In addition, mutual fund owners are much more likely than non-fund owners to engage in common online activities, such as accessing email, obtaining information about nonfinancial products and services, or purchasing products and services other than investments.

Figure 6.13

Most Mutual Fund Shareholders Use the Internet for Financial-Related Purposes

(percent of fund-owning and non-fund-owning households with Internet access,1 by online activities in past 12 months,2 2006)

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1Online activities are based on responding primary or co-decisionmaker for household saving and investing.
2June 2005 through May 2006
Source: Fundamentals, “Ownership of Mutual Funds and Use of the Internet, 2006”

A Historical Look at Mutual Fund Sales

Fund shares sold through professional financial advisers have traditionally accounted for a large majority of mutual fund sales. In 1975, for example, more than 80 percent of all long-term mutual fund sales were transacted with the assistance of advisers. By 1990, an estimated two-thirds of all long-term fund sales to households—not including purchases made through employer-sponsored retirement plans—were still made through advisers.

In the 1990s, many funds that were traditionally sold directly to fund investors increased their sales of fund shares through fund supermarkets, employer-sponsored retirement plans, and fee-based financial advisers. The share of new sales of these direct-marketed funds through these and other third parties rose from one-third in 1990 to two-thirds in 2006. As a result, long-term fund shares sold directly to retail fund investors now account for 11 percent of total new sales of long-term mutual funds, down from 23 percent in 1990 (Figure 6.14).

Figure 6.14

mutual fund Sales Through Third Parties has Grown

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Institutional Ownership

Nonfinancial businesses, financial institutions, nonprofit organizations, and other institutional investors hold about 13 percent of mutual fund assets. Nonfinancial businesses are the largest segment of institutional investors in mutual funds. These firms primarily use mutual funds as a tool to manage their cash. At year-end 2006, nonfinancial businesses' mutual fund assets totaled $638 billion, the majority of which was invested in money market funds (Figure 6.15). Financial institutions are the second-largest component of institutional investors in mutual funds. Their mutual fund assets at year-end 2006 were $372 billion, of which 58 percent was invested in money market funds. Nonprofit organizations held $154 billion in mutual fund accounts at year-end 2006. Unlike businesses and financial institutions, nonprofit organizations allocated the majority of their mutual fund assets to stock, bond, or hybrid funds. In 2006, other institutional investors, including state and local governments and funds holding mutual fund shares, held $188 billion in mutual funds, most of which was invested in stock, bond, or hybrid funds.

Fund sponsors often create special share classes or funds expressly for institutional investors. Institutional investors often purchase fund shares directly from fund companies. In addition, brokers, banks, and other third parties create "platforms" through which many institutional investors can buy mutual fund shares. These arrangements enable institutional investors, which are often restricted as to the portion of their assets that can be held in any particular mutual fund, to easily diversify their holdings across funds.

Figure 6.15

nonfinancial Businesses Are the Largest Type of Institutional Investor

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*Other institutional investors include assets of state and local governments, funds holding mutual fund shares, and other institutional
accounts not classified.
Note: Components may not add to the total because of rounding.