Retail fund distribution is “In the midst of the most profound structural change of the past 50 years”, according to a joint report from CACEIS and PricewaterhouseCoopers (PwC) Luxembourg.
The report identifies three significant factors that have played a part in disrupting the retail fund environment: regulations, a change in the demographic of the investor base, and developments in technology.
The regulatory landscape is now focussed on avoiding conflicts of interest and increasing transparency, with a trend towards banning inducement schemes between asset managers and fund distributors affecting the relationship between the two parties.
Over the next decade, as ‘Generation X’ assumes a more significant role in the global economy, traditional financial institutions will have to change the way they attract attention, loyalty and trust. According to the report, this could mean increasing brand awareness and establishing new products.
Finally, the report suggests that the distribution of funds is becoming a purely technological function, while interaction with advisors is becoming more virtual with the advent of ‘robo-advisors’. This is another disruption to the market that could require new business models.
New strategic responses are required in order to refine product propositions and therefore strengthen service offerings. Strategies that are already emerging include: share class re-engineering; strategic shareholding using ‘robo-investors’; direct platforms; advisory service enhancement; and end-client marketing.
However, the paper concludes that reducing costs and creating additional products will not be enough, and that distributors also need to launch enhanced advice solutions, incorporating these services with products. Distributors will need to improve asset allocation capabilities, reporting capabilities and management in order to overcome the main disruptors.
The report identifies changes in regulation, demographics and technology as catalysts for change in the value chain, and suggests that they will change the ‘balance of power’ between new players and ‘legacy’ players – asset managers, institutional investors and distributors.
The paper comes four years after a similar collaboration between CACEIS and PwC, in which they advised a reconsideration of distribution practices. The new report suggests that the impact of these disruptions has intensified and appropriate action is required as soon as possible.
Olivier Carré, a partner and regulatory and compliance advisory services leader at PwC in Luxembourg, said: “Opportunities abound for asset management firms and distributors, but they must understand how to make the most of them.”
“New pricing models, strong client-centric solutions, and increasing integration of social, mobile, analytics and cloud … will be essential for those who want to succeed in the new fund distribution landscape.”
Joseph Saliba, deputy CEO of CACEIS, added: “We believe that the insight and recommendations in this report will help asset managers and distributors define strategies that are needed to navigate the challenges before them.”
