Employer Plans a Primary Source for Buying Mutual Funds

According to a survey by the Investment Company Institute (ICI), nearly three out of five mutual fund-owning households bought their first fund through an employer-sponsored retirement plan, the survey report said. Twenty-six percent of mutual fund-owning households hold mutual funds solely inside employer-sponsored retirement plans, which include defined contribution plans (such as 401(k), 403(b), or 457 plans) and employer-sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs).

Just over a third (34%) of households indicated they own funds solely outside employer-sponsored plans, and 40% have funds both inside and outside employer-sponsored retirement plans. The data shows that altogether, 66% of mutual fund-owning households own funds through employer-sponsored retirement plans and 74% own funds outside these plans, including 56% who own mutual funds inside IRAs.

The vast majority of respondents said they are using mutual funds to save for retirement. Ninety-one percent of mutual fund-owning households indicated that saving for retirement is one of their household’s financial goals, and 73% said retirement saving is their primary financial goal.

Among households that own mutual funds inside employer-sponsored retirement plans, ICI found the median age of the household head is 47, 49% of these individuals have college or postgraduate degrees, and 80% are married or living with a partner. Investment decisionmaking is a shared responsibility in 64% of households that own mutual funds inside an employer-sponsored plan. Eighty-two percent of individuals heading households that own mutual funds inside employer-sponsored retirement plans are employed full- or part-time, and 17% indicated they are retired from their lifetime occupation.

Ownership Outside Retirement Plans

By contrast, among households that own mutual funds outside employer-sponsored retirement plans, the median age of the household head is 50, 51% of these individuals hold college or postgraduate degrees, and 74% are married or living with a partner. Investment decisionmaking is a shared responsibility in 60% of these households.

Seventy percent of individuals heading households that own mutual funds outside employer-sponsored retirement plans are employed full- or part-time, and 29% indicated they are retired from their lifetime occupation.

The Typical Mutual Fund Investor

The survey report said the median age of individuals heading households owning mutual funds is 49, 46% of these individuals have college or postgraduate degrees, and three-quarters of U.S. households that own mutual funds consist of couples that are married or living with a partner. Investment decisionmaking is a shared responsibility in 61% of households that own mutual funds.

Almost four-in-ten (39%) consider the sales force channel to be their primary source for purchasing mutual funds, which includes full-service brokers (14%), independent financial planners (12%), bank or savings institution representatives (9%), insurance agents (3%), and accountants(1%). Twelve percent said they consider the direct market channel to be their primary source for buying funds, with 7% citing fund companies and 5% citing discount brokers. Fifty-nine percent of mutual fund-owning households own funds through the sales force channel, and 36% of households indicated they own funds through the direct market channel.

The median amount of financial assets held by households that own mutual funds is $175,000, and ICI found these households use vehicles other than mutual funds for investing these assets as well. Thirty-eight percent indicated they own certificates of deposit, 46% said they own individual stocks, and 17% own individual bonds (excluding U.S. Savings Bonds). In addition, 28% indicated they hold investment real estate and 31% said they hold fixed or variable annuities.

Most (73%) individuals heading households that own mutual funds are employed full- or part-time, with 7% indicating they are retired from their lifetime occupation. Twenty-seven percent of individuals heading households that own mutual funds are not employed, but three-quarters of them are retired. Overall, ICI found 25% of individuals heading households that own mutual funds are retired from their lifetime occupations.

In 2007, 10% of individuals heading households that own mutual funds are members of Generation Y, persons born in 1977 or later. Twenty-four percent are members of Generation X, born between 1965 and 1976, and the largest proportion of individuals heading mutual fund-owning households (45%) is made up of members of the Baby Boom Generation, individuals born between 1946 and 1964. The remaining 21% of individuals heading mutual fund-owning households, according to the ICI data, were born in 1945 or earlier.

By income level, 26% of households owning mutual funds have household incomes of less than $50,000, while 24% have household incomes between $50,000 and $74,999. Half have incomes of $75,000 or more.

TNS, a nationwide opinion research firm, completed the survey on behalf of ICI in May 2007 using a random digit dial (RDD) national probability sample of 3,977 U.S. households, of which 1,733 households, or 43.6%, own mutual funds.

The complete ICI report is available at www.ici.org/pdf/rpt_profile08.pdf.