Key Trends in US Intermediary-Sold Fund Distribution Dennis Bowden Assistant Director of U.S. Research dbowden@sionline.com 1

US Intermediary-Sold Distribution Landscape +9% % Change 2009 - 2011 -1.5% +1.0% -0.7% +0.7% Source: SI Fund Sales Survey 2

Distribution Channel Sales Growth 2011 – Fee-Based Programs Continuing Rapid Growth; RIA, IODC Leading Standalone Channels in 2011 Source: SI Fund Sales Survey 3

Wrap / Fee-Based Advisory Programs Key driver of growth across expanding segments on the intermediary-sold marketplace Fee-based sales grew faster than any standalone channel during each of the past three years Opportunities but also challenges Widening competitive landscape – to include many traditionally direct- sold firms, as well as ETFs Fund profitability challenges within an evolving economic reality Rising distribution costs + increasing demand for lowest-cost share class Secular increase in asset velocity and longevity risk Centralized decision-making vs. more heterogeneous FA/investor pools Implications around growing discretionary advisor community

Platform Redemption Patterns – Balancing Sales Growth with Asset Stability & Profitability Considerations Source: Coates Analytics Distribution Management System / ICI / SI Analysis 5

National BDs vs. Independent/Reg’l BDs – Post Crisis Growth via Independent BDs Outpacing Nationals as More Firms Continue to Diversify Distribution Footprint Source: SI Fund Sales Survey 6

RIAs – Fastest Growing Standalone Channel In Three RIAs – Fastest Growing Standalone Channel In Three* of the Past Four Years, Although Still from a Small Base for Many Firms Source: SI Fund Sales Survey 7

RIA Channel – Continued Potential Opportunity, but Inherent Challenges Remain Fastest-growing standalone channel since 2007 among our peer group of traditionally BD-focused fund managers Challenges for sustaining growth within RIA channel remain Unique investment needs and sophistication Geographic and philosophical diversity Existing allegiances to specialized and boutique managers Higher preference for ETFs And more… For many firms, still ongoing process in evolving to proactive rather than reactive engagement of RIAs But increasing number of firms progressing in building longer-term trust and lasting presence

New Data Coming from SI to Help You Better Assess the Intermediary-Sold Marketplace – Including RIA Demand Trends by Category vs. Other Channels, Overall Industry Source: Access Data, a Broadridge company / Strategic Insight / SI Analysis 9

As Well As ETF Usage by Category Across Industry Segments – Similarities, Differences by Channel and/or Individual Distributor? Source: Access Data, a Broadridge company / Strategic Insight / SI Analysis 10

Share Class Pricing Trends Reflective of Shifting Distribution Landscape – Profitability Challenges; Marketplace Eliminating Need for Remaking 12b-1? Source: SI Fund Sales Survey

No Load Growth Spurred by Increasing “Retail-ization” of Traditionally Institutional Shares Source: SI Fund Sales Survey

Fee-Based Programs – Demand for Lowest-Cost Share Classes a Key Driver of Increasing No Load Sales Source: SI Fund Sales Survey

Dominant Majority of Fee-Based No-Load Sales Coming via Shares without 12b-1 Fees – Accelerating Proportion of Total Shareholder Cost Migrating Outside of Fund TER Source: SI Fund Sales Survey

Investment Only DC Sales Also Increasingly Coming via No Load Shares Source: SI Fund Sales Survey

A Few Key Intermediary-Sold Distribution Considerations Moving Forward Continued expansion of fee-based sales – opportunities but also challenges Rising costs, shifting share class demand, shrinking holding periods contributing to evolving economic reality Increasing asset longevity risk – centralized decision-making vs. more heterogeneous FA/investor pools Increasing importance of diversified distribution footprint Decreasing reliance on handful of large (and often most expensive) distribution partners Accelerating demand for lowest cost share class Increasing migration of shareholder cost to outside fund expense ratio Fund profitability dilemma – managing retail distribution costs within shares priced for institutional use Regulatory implications – marketplace forces solving need for radical remake of Rule 12b-1?

Coming to Simfund MF Q4’2012: Comprehensive Intermediary-Sold Distribution Data – Helping You to Navigate a More Complex Marketplace Monthly assets and net flows available by Distributor and by Distribution Channel for mutual funds and ETFs National BDs, Independent BDs, Regional BDs, RIAs, Bank BDs, Bank Trusts, and more Integrating new data into existing Simfund analytics to create a more powerful and comprehensive tool Holistic product + distribution data solution Ability to leverage existing classifications, performance, fee, and other data Unique strategic tool to help your firm identify opportunity and leverage data-driven analytics to advance strategic distribution initiatives

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