Earlier this month, Tom Lauricella and Ian McDonald of the Wall Street Journal wrote an article about financial services firms giving up the funds game ("Merrill Deal Hastens Wall Street Retreat from Funds"). Using Merrill Lynch as a case study, the authors note that this is a reversal of the trend in the 1990s of companies providing all kinds of financial services, including bank accounts, mortgages, mutual funds, and insurance packages.

There are a few factors at work, suggest the authors. One is investors are getting disillusioned with fund performance, and are turning to other investment vehicles: Ordinary investors, to indexing and ETFs; and many rich investors, to hedge funds. Across the industry, fund managers have to deal with stricter regulations, and attempt to be competitive on fees. Additionally, brokers affiliated with financial services companies have to be careful when recommending in-house funds to clients, owing to worries over conflicts of interest.

Some companies have merged funds with other companies' funds; others have sold or traded management of funds. Northwestern Mutual is selling its Mason Street Funds. Citigroup did a swap of its money management group for Legg Mason's brokerage business. AmSouth Bancorp sold its mutual fund business to Pioneer. In Merrill's case, after attempting to change the name its funds group, is trading it to BlackRock for a 49% stake in BlackRock.
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