Alert October 06, 2009

ICI and IDC Publish White Paper on Fund Relationships with Intermediaries

The Investment Company Institute and the Independent Directors Council have jointly published a white paper entitled “Navigating Intermediary Relationships” (the “Paper”), which examines the role of intermediaries in distributing mutual funds to investors.  Intended to provide fund directors with background information about intermediaries, the Paper offers a summary of the intermediary role and the common types of intermediaries, such as broker-dealers, banks, fund platforms, insurance companies, investment advisers and retirement plan record keepers, and the types of financial and non-financial transactions between mutual funds and intermediaries.  The Paper also provides a broad overview of the types of account structures used in intermediary relationships, including individual networked accounts and omnibus accounts.  The Paper describes the different types of services provided by intermediaries, and briefly examines oversight of these services and the range of compliance functions intermediaries perform.  The Paper offers a summary of the compensation arrangements for intermediaries, including 12b-1 fees, alternative shareholder servicing arrangements, finder’s fees and revenue sharing.

The Paper concludes with appendices that provide additional detail regarding topics covered in the Paper, including types of intermediaries, processing and account structures, the history of Fund/SERV and Networking, relevant regulatory and compliance initiatives, sales charges and fee calculation methods and processing.  One appendix is devoted to questions a board can ask to elicit information that will assist it in overseeing a fund’s intermediary relationships.