Different segments of advisors in the United States have vastly different mutual fund selection processes and different preferred mutual fund companies according to new research from California-based Tiburon Strategic Advisors.

The research found that fee-only financial advisors use funds from a wide variety of fund families, and typically build portfolios using seven to nine funds from about five fund families.

Independent reps, on the other hand, sell primarily load funds. The research found that more than half of independent reps commit greater than 50% of their client assets to one mutual fund company.

Fee-based advisors favour Janus, Invesco, Fidelity, and Vanguard. Independent reps prefer American Funds, Putnam, Franklin/Templeton, and AIM.

Tiburon says that there are 19,500 fee-only financial advisors in the U.S. up from 12,500 in 1992 and these advisors collectively manage US$2.2 trillion of client assets today. These assets are dominated by a group of about 1,200 advisors who manage $200 million or more each. These advisor account for about 2/3 of all assets.

“Detailed interviews of these fee-only financial advisors suggest that relative performance and mutual fund manager longevity are their key selection criteria. On the other side, five-year performance and style drift are reported to be their key mutual fund selling criteria.”

Tiburon managing principal Chip Roame noted that, “to serve fee-only financial advisors, mutual fund companies need to focus on performance, style adherence, and access to portfolio managers. Broad fund families and lots of wholesalers are less important.”

There are 70,000 independent reps in the U.S., up from 40,000 in 1990. Independent reps earn 50% of their revenues from up-front product commissions, 24% from investment advisory fees, and 20% from trailing product commissions.

“Quite unlike fee-only financial advisors, independent reps are loyal to one mutual fund family. “Independent reps report that fund family performance, fund family breadth, and wholesaler support are the leading criteria in selecting their favorite mutual fund company. Also, unlike fee-only financial advisors, independent reps sought increased wholesaler support; many reported receiving annual visits but desiring quarterly visits. Sales ideas and technical training were sought from the wholesalers.”

Tiburon CEO-in-residence Ken George noted that, “to serve independent reps, mutual fund companies need to focus on having broad fund families with solid performance and large wholesaler forces.”

Tiburon says its findings suggest the need for different product development, wholesaling and value added services for mutual fund companies in each market segment.