Can anyone explain this in simple terms with an example?
It’s basically a way to aggregate trades. Let’s say 10,000 investors own Mutual Fund A through their Fidelity accounts. Fidelity will tally up all the buys and sells each day, and send one trade to Mutual Fund A company. Mutual Fund A will see that single trade come through from their omnibus account at Fidelity rather than 10,000 buys or sells from each individual investor. Fidelity will typically charge a fee for this service to Mutual Fund A since they are not only aggregating trades, but doing all the other account management (statements, website, call center, etc.). This fee is normally paid out of Mutual Fund A’s expense ratio. So if the fund costs 90 basis points, Mutual Fund A might give Fidelity 40 basis points for doing all that stuff. It reduces Mutual Fund A’s profit, but they are happy to not have to provide any service to those 10,000 investors.
^Nicely done. We (mutual fund co.) really appreciate omnibus trading.
Thank you Don D. I work in a diversified financial services company and worked a side project representing my area in a software implementation (Broadridge) that tracked intermediaries getting our mutual funds new customers. I still remember the (somewhat ditzy) project manager describing the omnibus accounts. She said “Imagine a bus, with a lots of things in it. That is like an omnibus”. And she would shape the bus with hand gestures. I heard this explanation like three times, and I think everyone (including me) was more confused after she tried to explain it. I like your explanation better. 