Drivers of change
Although some might see third party distribution as the panacea which will solve all the problems of the still fragmented European fund management, it seems there is still a long way to go before new distribution channels are consolidated. It is true that the ‘open architecture’ in fund management has arrived in Europe, but it’s still early days to know which form the future fund market will finally take.
According to delegates at a conference on Third Party Distribution held in Luxembourg in June, the driver behind the changes in fund distribution have been the new needs among investors.
“The anatomy of investors’ needs is changing and we have to ensure that our products are sophisticated enough to meet their requirements,” said, Sheenagh Gordon-Hart, vice president, head of strategy and research,EMEA, at JP Morgan Investor Services.
“Technology is changing the way we deliver our products and how people make their investment decisions,” she said. “The opportunities are now greater but competition is only one click away, so the search for excellence is something we have to bear in mind all the time.”
Taking into account Merril Lynch figures indicating that the Europe is around $6trn short in terms of funding of pensions, the opportunities for fund managers in the years to come are huge, but the competition is also tougher than ever before.
Manufacturers in the fund management industry are now becoming distributors of third party products and these changes and new competition are putting banks under increasing pressure.
“The focus on distribution must not diminish the importance of client retention,” said Fernand Schoppig, president at US-firm FS Associates. “Multi-channel distribution is really the way to go because you really want to create alliances with someone who’s got what you don’t have.” He added: “You want to make sure you can retain your clients, that you have what they need.”
Comparing the state of development of third party products in Europe with that in the US, Schoppig said: “The European asset management scene increasingly resembles the US asset management industry. Products such as multi-manager structures are mushrooming in Europe, so indeed very often where the US starts, Europe follows.”
Delegates also discussed the importance of branding. As shelf space is limited and expensive, fund providers must be easily recognisable. According to Schoppig what motivates the intermediary to choose a product over other is to be in the intermediary’s preferred list, to show a strong and efficient sales and support force and to demonstrate a strong brand recognition. “Performance is clearly not the most important component.”And the customer decision when choosing a product will be more and more based on professional advice. Georg Redlbacher, head of European mutual fund sales at Dresdner Asset Management said: “The fund management industry is changing. In the third party distribution area the most important relationship is the one that the advisor has with the customer.”