How Important Is Affiliation Between Mutual Funds and Distributors for Fund Flows?

We quantify the importance to mutual fund flows of affiliation between funds and their distributors. Bank failures create exogenous variation in retail customers’ exposure to bank-affiliated mutual funds. When a bank fails, its customers are moved to other banks that distribute their own affiliated mutual funds. Following such exogeneous bank shifts, customers sell their fund holdings and replace them with funds affiliated with their new banks. Customers react sequentially over time. After four years, a third of customers’ investments have been reallocated. In spite of large reallocations, investors do not end up with better-performing fund portfolios.