Third-Party Distributor (2023)

What Is a Third-Party Distributor?

A third-party distributor is an institution that sells or distributes mutual funds to investors forfundmanagement companies. These entities generally have no direct relation to the fund itself. Partnerships between mutual fund companies and third-party distributors often come with various fees and provisions.

Since they are independent of fund management companies, third parties are, theoretically, unbiased when they sell products to investors.

Key Takeaways

  • A third-party distributor is an institution that sells or distributes mutual funds to investors forfund management companies.
  • Any mutual fund sold by a third-party distributor typically comes with more fees and provisions.
  • Because they may not be affiliated with fund companies, third-party distributors generally provide investors with unbiased advice.
  • Some companies may set up their own distribution networks such as Eaton Vance and Vanguard.
  • The distributor usually receives sales charge commissions for selling the investment company’s mutual funds as well as a portion of thetrailer feesassociated with the fund.
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Understanding a Third-Party Distributor

Third-party distributors partner with investment companies to sell mutual funds. Third-party distributors typically have comprehensive domestic and international sales teams in place to distribute the investment company’s mutual funds. Distributors also have a broad sales network and expertise in mutual fund distribution.

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There are numerous fees associated with partnerships between third-party distributors and mutual fund companies. The distributor usually receives sales charge commissions for selling the investment company’s mutual funds as well as a portion of thetrailer feesassociated with the fund. A mutual fund’s operational fees will also include a marketing expense paid to the distributor. Other fees that a distributor can charge a mutual fund include networking fees, due diligence fees, platform maintenance fees, and administrative fees.

Depending on the cost structure, these fees can be worth it to a mutual fund as it removes the time and cost of seeking out new clients and hiring a sales team that comes with the cost of salaries and benefits. In the end, it depends on the margins between the two options or finding an optimal balance between the two.

A 12B-1 fee is the primary fund fee associated with the marketing and distribution of the fund. The 12B-1 fee is an annual marketing and distribution fee paid to the distributor.

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One of the benefits of using a third-party distributor is its apparent independence from mutual fund companies. As a third party, the distributor can provide unbiased recommendations to investors without favoring one particular product over another. This could result in potential investors receiving the best advice suited to their needs rather than a mutual fund selling itself to hit sales targets.

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Fund managers generally try to sell the products of their own companies, but with a third party, investors may get access to a wide range of products across many different companies. The only catch, as noted above, is the higher fee structure that may come with using these distributors.

The Role of a Third-Party Distributor

Third-party distribution partnership agreements vary across the industry. Many third-party distributors also provide a range of services that support mutual funds.

As a distributor, the firm works with the investment company to build a marketing plan for the distribution of the mutual fund. Third-party distributors typically work with employee distribution representatives with global distribution networks. They can be responsible for selling individual funds and work with brokerages to ensure the distribution of funds through electronic brokerage trading platforms.

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In some cases, a company may build its own third-party distribution unit to partner with the investment company for the distribution of mutual funds. Independent distributors also exist with a range of service offerings for mutual fund companies.

Examples of Third-Party Distributors

Eaton Vance and Vanguard are two mutual fund companies that have built distribution units for selling mutual funds. Eaton Vance Distributors serves as the distributor for Eaton Vance mutual funds. The Vanguard Marketing Corporation is the distributor for the Vanguard mutual funds.

ALPS Distributors is one of the mutual fund industry’s leading independent distributors. ALPS provides distribution and broker-dealer services for a wide range of mutual fund companies. Its clients range from startups to large, well-established fund companies. It has expertise in distributing a wide range of product types including open-end funds, closed-end funds, unit investment trusts, exchange-traded funds (ETFs), and private placements.

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FAQs

Third-Party Distributor? ›

A third-party distributor is an institution that sells or distributes mutual funds to investors for fund management companies. These entities generally have no direct relation to the fund itself. Partnerships between mutual fund companies and third-party distributors often come with various fees and provisions.

What is a mutual fund distributor? ›

Definition: An individual or an entity facilitating buying and selling of units of mutual fund by investors. A distributor earns upfront/trail commission for bringing in investors into the mutual fund schemes.

What is a third party mutual fund? ›

Third-party mutual funds, on the other hand, are managed by outside, independent managers. These include the big brand names of the business such as Vanguard, T. Rowe Price, Franklin, and Fidelity. They might be sold directly to the investor or they may be sold by other companies or by an independent advisor.

What is a third party investor? ›

(5) Third party investor The term “third party investor” means a person who— (A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and (B) is not (and has not been) actively engaged, and is (and was) not related to a person so engaged, in ( ...

Who can distribute mutual funds? ›

A Mutual Fund Distributor may be an individual or a non-individual entity, such as bank, brokering house or on-line distribution channel provider. Register with Association of Mutual Funds in India (AMFI ) and obtain AMFI Registration Number (ARN).

How MF distributors earn their commission? ›

The mutual fund distributors earn commission by bringing in investors to the mutual fund scheme. They also advise the investors about the various schemes of different mutual fund houses. Every mutual fund is registered with SEBI (Securities and Exchange Board of India) and hence considered to be safe.

How much does MF distributor earn? ›

Mutual fund (MF) distributors' income has grown at a tepid pace in financial year 2020-2021. According to data from AMFI, MF distributors received Rs 6,617 crore in 2020-2021, which was just 7.6 percent higher than the previous financial year.

What is a 3rd party broker dealer? ›

In particular, broker-dealers can provide retail non-deposit investment products for bank/credit union customers. Rather than running their investment services programs internally, banks and credit unions engage third-party broker-dealers to run their brokerage and wealth management units for them.

What is an ETF distributor? ›

In essence, the ETF distributor and the AP work together to facilitate the creation and redemption of ETF shares. The process works like this: An ETF distributor and an AP will sign an agreement “authorizing” the AP to create and redeem shares with a specific ETF.

How do I become a mutual fund distributor? ›

Become a Mutual Fund Distributor
  1. o Minimum age for obtaining ARN is 18 years.
  2. o ARN is a unique number allotted to:
  3. o Individual agents, brokers, and other intermediaries engaged in selling Mutual Funds, having.
  4. passed the NISM Certification Test and senior citizens having attended Continuing.

Who is a third party in business? ›

A third party is an individual or entity that is involved in a transaction but is not one of the principals and, thus, has a lesser interest in the transaction.

What are third parties Examples? ›

Centrist
  • Alliance Party (United States)
  • American Solidarity Party.
  • Citizens Party.
  • Forward Party.
  • Reform Party of the United States of America.
  • Serve America Movement.
  • United States Pirate Party.
  • Unity Party of America.

Who is considered third party? ›

n. a person who is not a party to a contract or a transaction, but has an involvement (such as a buyer from one of the parties, was present when the agreement was signed, or made an offer that was rejected).

Who appoints mutual fund distributors? ›

Draft amendments to the Sebi (Self Regulatory Organisations) Regulations are in the process of being vetted and Sebi will appoint the SRO soon after the modified rules are notified, sources said. The SRO will assist Sebi and ensure a cordial relationship between mutual fund houses and distributors.

Is mutual fund distributor profitable? ›

Mutual Fund Business has reserved a unique spot in the finance industry and captures eyes of distributors due to its lucrative income potential.

What are the 3 types of mutual funds? ›

Mutual funds offer one of the most comprehensive, easy and flexible ways to create a diversified portfolio of investments.
...
Different Types of Mutual Funds
  • Equity or growth schemes. ...
  • Money market funds or liquid funds: ...
  • Fixed income or debt mutual funds: ...
  • Balanced funds:

How much money does a distributor make? ›

The margin for a distributor may range from 3% to 30% of the sales price, the margin for the retailer may range from very little to 60%.

Can it employee become mutual fund distributor? ›

Yes, a government employee can apply to become a mutual fund distributor.

How can I become a SBI mutual fund Distributor? ›

Empanel Offline
  1. Step 1: Fill the Empanelment form for Distributor. You can download form by clicking here – Empanelment form.
  2. Step 2: Keep Copies of following documents ready. ...
  3. Step 3: Submit all the forms and documents to the nearest SBI Mutual Fund Branch.

What is the commission of distributor? ›

The Mutual Fund Distributor or Agent's Commission is nothing but the fee an agent receives from the AMCs for selling mutual fund schemes. The mutual fund distributor's commissions vary across different mutual fund schemes and asset management companies.

How do I become a SIP agent? ›

To become an MF advisor, follow these simple steps:
  1. Register for the NISM exam. Candidates wishing to become MF advisors should first register for the National Institute of Securities Market (NISM) VA Mutual Funds Distributors Certification Exam. ...
  2. Pass the NISM Exam. ...
  3. Know Your Distributor. ...
  4. Register with AMCs or Distributors.

Can CA become mutual fund distributor? ›

A practicing company secretary or a chartered accountant cannot become a mutual fund distributor.

What is third party in marketing? ›

Third-party marketing is a consulting service provided to hedge fund managers who need the expertise of seasoned marketing professionals. Third-party marketing firms, also known as third-party distributors, employ experienced investment marketing and sales experts.

Can you be registered with two broker-dealers? ›

To dually register an individual as an AG (Broker-Dealer Agent) and RA (Investment Adviser Representative) when the employing firms are affiliates, both Form BD and Form ADV must designate the other firm as an affiliate.

How do I register as a broker? ›

APPLICATION FOR REGISTRATION WITH SEBI AS A STOCK BROKER
  1. Name of applicant Member-Broker:
  2. Trade name of member, firm, corporate body, institution:
  3. Form of Organisation - Sole proprietorship, partnership, corporate body, financial institution. ...
  4. Educational Qualification of proprietor, partners, directors, etc.:
Apr 10, 1992

How do ETFs make money? ›

ETFs make money by investing in assets such as stocks or bonds. ETF investors make money when assets within the fund such as stocks grow in value or pass on profits to investors in the form of dividends or interest.

How does ETF issuers make money? ›

The largest ETFs have annual fees of 0.03% of the amount invested, or even lower, although specialty ETFs can have annual fees well in excess of 1% of the amount invested. These fees are paid to the ETF issuer out of dividends received from the underlying holdings or from selling assets.

Do ETFs own stocks? ›

ETFs do not involve actual ownership of securities. Mutual funds own the securities in their basket. Stocks involve physical ownership of the security. ETFs diversify risk by tracking different companies in a sector or industry in a single fund.

What do fund distributors do? ›

Key Takeaways. A third-party distributor is an institution that sells or distributes mutual funds to investors for fund management companies. Any mutual fund sold by a third-party distributor typically comes with more fees and provisions.

Who pays a mutual fund distributor? ›

Mutual funds charge their investors front-load fees when they buy into the fund and back-load fees when they leave it. Every time an investor buys or sells shares of the fund, they are charged one of these fees.

Is it worth to become mutual fund distributor? ›

SEBI is a trigger happy regulator. In its desire to help investors, it seems to have thrown a spanner in the works . The actual benefit to the investor from many of its diktats pales in comparison to the havoc created in the financial services.

What is the difference between mutual fund distributor and investment advisor? ›

Conclusion. Mutual fund distributors are likely to discuss the provisions of their products with you with the intention of selling them. Investment advisors, on the other hand, will discuss your income, expenses, long- and short-term goals, tax obligations and income to tailor your investment plan in an unbiased manner ...

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