How Important is the Distribution Channel for Mutual Fund Flows?

We use bank failures to analyse exogenous variation in the distribution channel of bankaffiliated mutual funds. Our contribution is three-fold. First, we establish a causal effect from the distribution channel of mutual funds to retail investors’ fund portfolios. As our main empirical result, we secondly document that the magnitude of flows induced by changes in the distribution channel is large; it drives at least a third of households’ mutual fund choices. Third, we show that mutual fund flows are not directed into high-rated funds. We conclude that the distribution channel has a large, causal, and detrimental impact on investors’ portfolios.