What is a Third-Party Distributor

A third-party distributor is the name given to institutions that sell or distribute mutual funds to investors for fund management companies without direct relation to the fund itself. Mutual fund companies often party with third-party distributors with various fees and provisions involved with the partnership.

BREAKING DOWN Third-Party Distributor

A third-party distributor partners with an investment company 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.

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 the trailer fees associated with the fund. A mutual fund’s operational fees will also include a marketing expense paid to the distributor. 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

Role of 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 distribution of the mutual fund. Third-party distributors typically employee distribution representatives with global distribution networks. They can be responsible for selling individual funds and working with brokerages to ensure the distribution of funds through electronic brokerage trading platforms.

In some cases, a company may build its own third-party distribution unit to partner with the investment company for 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 who 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 and private placements.