Company Press Release

Boston, MA — (June 7, 2010) —Mutual fund net sales posted a record-high year in 2009 and despite their strong flows year-to-date through April ($187 billion), Financial Research Corporation (FRC) expects they will moderate in 2010, according to the fourth edition of FRC's Mutual Fund Market Sizing study. Findings in the study indicate that investors appear to have stopped chasing equity market performance and are shortening their average mutual fund holding periods. FRC projects flows into mutual funds will begin to normalize in 2011 and trend upward through 2014. This study is based on an analysis of FRC's proprietary database of mutual fund assets and net sales, FRC IMPACT, and FRC's Advisor Insight Series, as well as data from various industry sources, including the Investment Company Institute (ICI).

"Generally speaking, we do not expect 2010 to be a repeat of 2009's record-breaking performance," stated Bridget Bearden, the study's author. "However, we do expect 2010 net sales to remain high relative to the period prior to the financial crisis of 2008." There are several factors shaping the marketplace, including risk adversity within the larger investor population, not just with retirees, and declining levels of asset stickiness.

Examining the factors that drove mutual fund inflows to new highs in 2009, FRC noticed that although equities rebounded strongly during 2009, investors didn't respond like they have during historical equity market upticks and were simply unwilling to take on more risk at the time. "Investors are still too risk averse to invest new money into products that are traditionally associated with higher risk levels," commented Bearden. "Generally speaking, what we are seeing is a lull in investor performance-chasing behavior. This is demonstrated by investors' reluctance to jump into equities even in the face of a dramatically improving equities market. We believe this signifies a continued paralysis of flows into the equities market through the end of this year."

FRC also analyzed average long-term mutual fund holding periods, identifying that they reached their high in 2005 and 2006 at an average holding period of 4.4 years, and subsequently declining to 3.8 years at year-end 2007 followed by a 2.9-year holding period at year-end 2008. "The huge drop in 2008 is indicative of the anomalous and tumultuous market environment; however, we also anticipate holding periods to continue to decline through the rest of 2010," noted Bearden.

Other key marketplace issues covered:

Declining Advisor Headcounts— The advisory landscape has shifted dramatically over the past year. The number of retail advisors declined 17% between 2009 and 2010. Specifically, advisors in the independent channel declined due to consolidation and closures of independent broker/dealers, while advisor headcount in the insurance channel fell due to insurance firms spinning off non-core brokerage arms.

Advisors Still Drive Fund Sales— Despite a reduction in the advisory force, retail advisors still represented nearly 60% of total mutual fund gross sales for 2009, representing the channel's stability as a core mutual fund distribution channel.

RIAs Largest Opportunity for Asset Managers-— In addition to being the largest generator of mutual fund gross sales among intermediary channels, FRC projects the RIA channel to more than double its mutual fund assets by 2014.

About this Study

The Mutual Fund Market Sizing study forecasts the fund distribution landscape through 2014, providing a detailed historical and forward-looking cross-channel analysis of gross sales, net sales, assets, and growth rates for each of the six intermediary channels (wirehouses, regional brokers, independent brokers, banks, insurance companies, and RIAs). Beyond market metrics, this FRC study also provides analysis and commentary on the trends and business events shaping these projections including advisor recruitment and retention, financial regulatory reform, fiduciary standards, as well as mergers and acquisitions.

For more information or to schedule an interview with the research author, please contact Trisha Langlois at 617-399-5631 or e-mail Trisha.Langlois@frcnet.com.

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About Financial Research Corporation

For more than 20 years, Financial Research Corporation (FRC) has assisted marketing, product development, and strategic planning professionals in the creation of innovative products and services. Based in Boston, FRC is at the forefront of assisting the world's leading asset managers and distributors to comprehend and respond to the rapid changes occurring in the manufacture and distribution of investment products. For more information, contact FRC at (866) 532-8009, frcinfo@frcnet.com, or visit www.frcnet.com.


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