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Rethinking Distribution
Creating competitive advantage in a new fund distribution paradigm
June 2011
2
Rethinking
Distribution
3
PwC Luxembourg
For the third consecutive year we are proud to partner with CACEIS
to examine the future of our industry within the context of the
major trends which are currently asserting themselves.
When our industry faces such a maelstrom of change, it is not
enough to simply react. We must take the time to actively
consider what our future may hold in store. We must exercise our
imagination and combine it with our knowledge of the industry
as it stands to make informed assumptions that will allow us to
more effectively weigh the value of our longer term objectives.
It is not an easy task. With such an array of forces affecting our
industry – an industry which is itself complex and sophisticated
– it would be tempting to adopt a ‘wait and see’ approach. In this
report we have tried to resist this temptation.
Although nobody can predict the future of fund distribution, we
do have broad trends that can guide us. Utilising these trends, we
have defined a number of potential scenarios for the next five to
ten years. Some will materialise, some will not. The value of each
scenario lies in the critique that we can individually bring to it after
considering the factors involved and weighing the arguments
objectively. This will certainly help the reader to navigate through
uncertain times.
We trust you will find this report useful, informative and most of
all, thought provoking. We hope that you will contribute to the
debate at www.rethinkingdistribution.com and we look forward
to discussing your views in the future.
CACEIS Investor Services
With today’s increasingly globalised economy and the emergence
of new economic and political powers, the long-term ramifications
of any global crisis can only be more pronounced. However,
despite the coordinated intervention of global institutions, which
seem to be steering the financial industry on a more stable course,
the true and enduring consequences of the crisis remain less
than clear.
CACEIS, in association with our long-term research partner, PwC
Luxembourg, have undertaken to analyse the growing field of
international fund distribution, identifying the drivers of change
and speculating on the possible outcomes in this post-crisis
environment. We sought to focus research efforts on a limited
number of the most common scenarios faced by industry players.
And for each scenario, we have determined the most probable
direction of distribution developments and the best course of
action to achieve a successful commercial venture.
As a leading service provider in the global fund distribution
arena, CACEIS cannot limit itself to simply performing an analysis
of current market trends. We strongly believe that we have a
responsibility to our clients, be they fund distributors, institutional
investors or asset managers, to understand and make preparations
for the future environment in which they will do business. It is
through these attempts to gain a deeper understanding of the
intricacies of the markets in which our clients operate that we are
able to remain a frontrunner, offering innovative services in an
increasingly complex fund distribution environment.
We trust you will find this publication both enlightening and
compelling.
Marc Saluzzi
PwC Luxembourg, Financial Services Leader
François Marion
CACEIS, Chief Executive Officer
Message from the authors
4
This report presents the findings of our research and analysis
over the past six months, including in-depth interviews with
several senior executives at asset management companies,
banks and professional associations whom I would like to
thank for their time commitment and in-depth insights of the
industry.
CACEIS and PwC Luxembourg jointly developed the hypotheses
and analysis for this research and I would like to acknowledge
all our colleagues and experts from CACEIS and PwC namely
Arianna Arzeni, Xavier Balthazar, Olivier Carré, Mark Evans,
Thierry Flamand, François Génaux, Claude Michaux, John
Parkhouse, Christophe Pittie and Didier Prime for their
contributions and support during this project. I would also
like to thank Gregory Weber and Xavier Domalain who provided
essential research to this project.
Our goal is to provide leaders within the asset management
industry with thoughtful insights and create a basis for
discussion on the future of the industry. This research is
independent and has not been sponsored or commissioned
by any firm or institution.
About this report
Dariush Yazdani
PwC Luxembourg, Director of Financial Services Research Unit
www.rethinkingdistribu
4
Message from the authors 3
About this report 4
Executive Summary 6
Introduction 10
Key drivers of change 14
Increase in regulation 16
Increased exposure to emerging markets 18
Change in investor trust and loyalty patterns 20
Focus on pension and retirement products and solutions 22
Increased separation of alpha and beta and competition from other financial products 24
Increasing use of technology to reach investors 26
Scenario Planning 30
Distribution Models 31
Global Fund Distribution 35
Pension and Insurance Markets 38
Substitute Products 42
e-Investors 46
Conclusion 52
Table of contents
bution.com
6
The key drivers of change we have observed in the past few
years are far from being a temporary phenomenon. These trends
are set to cause a significant shift within the asset management
industry. Each of these trends and their effects are distinctive
in nature but the implications for asset managers are to a
certain extent similar. Our research anticipates the following
developments with the industry in the future:
SEGREGATION BETWEEN PURE DISTRIBUTION AND
PURE ADVICE
We believe increased regulation at the point of sale and investor
scrutiny will lead to a segregation between pure advice and
pure distribution. The asset management industry, especially
in Anglo-Saxon countries, will move towards a new paradigm
where, after receiving advice, the investor will execute an
order via a trading platform or an intermediary. However, this
evolution may be slow in Continental Europe where distributors,
as they keep their current commission charging structures,
may be encouraged to further integrate in-house product
manufacturing to better control costs and risks of distributing
funds to a still captive clientele.
RECIPROCITY BETWEEN EUROPE AND SELECTED EMERGING
MARKETS KEY TO LONG TERM GROWTH
To avoid marginalisation and loss of opportunity in playing
a significant role in emerging markets, the European asset
management industry should push for a “Reciprocity
Agreement” allowing the distribution of European funds in
selected emerging markets and vice versa. At minimum an
inclusive process should be considered, where the views,
needs and concerns of emerging market regulators find due
consideration in developing new European fund regulations.
THE RISK OF PENSION SAVINGS WILL NOT BE FULLY
TRANSFERRED TO THE INDIVIDUAL
European governments, particularly, will impose minimum
return requirements on pension savings products. Asset
managers will face challenges in endorsing these risks, or part
of them, and therefore to provide such products independently.
They will be forced to partner with insurance companies and
other providers to bank on this opportunity.
MORE THAN A REGULATORY LEVEL PLAYING FIELD IS
NEEDED TO COMPETE AGAINST SUBSTITUTE PRODUCTS
The regulatory level playing field which is set to partially
materialise in the near future through PRIPs (Packeged Retail
Investment Products) will not result in a significant increase of
competitiveness of the asset management industry. The other
ingredients required from the asset management industry
are better time to market, an improved product fit in terms
of investor needs (such as capital protection and outcome
orientation) as well as increasing the attractiveness of mutual
funds for banking and insurance distributors.
Executive Summary
FACE ATTRITION OR INCREASE INTERACTION, INFORMATION
AND TRANSPARENCY
With increasing use of social media and connectivity, investors
will be better informed and will challenge their advisers.
Advisers will need to ensure that their personal expertise and
sophistication remains high in order to be able to respond to
informed investors and engage in a fruitful dialogue. Asset
managers and distributors will need to provide tools allowing
investors to inform, compare and invest through internet and
mobile solutions. Failure to do so would result in customers
switching to the competition.
To create a competitive advantage in such a new fund
distribution paradigm, our research concludes that the key
implications for asset managers are:
Invest in relationships
Asset managers should invest in close relationships with
distributors, investors and emerging market players to position
themselves as a privileged interlocutor and solution-provider.
Asset management firms should be able to listen to and capture
client feedback, using social media for instance, to deliver
successful products and services in a timely manner. They
should also provide more information, educational materials
and training to both investors and advisers to improve their
financial capability.
Asset managers should draw on their relationships with
distributors, advisers and investors to develop new products,
and move towards solution-based products. To deliver
the required products, they may need to team up with other
financial solution providers.
The most successful distribution strategy cannot be
successful if the product fails to deliver investors the expected
performance, the value-for-money (the maximum client
benefit in the most cost-effective manner) and the safety of
a highly regulated vehicle.
All in all, investors want a new experience from the asset
management industry. The ability of the latter to deliver this
new experience, or not, will dictate how succesful the industry
will remain going forward.
7
8
9
Introduction
Rethinking
Distribution
10
The asset management (AM) industry in Western countries has
seen tremendous growth over the past thirty years driven by
strong local and regional economic developments, expansion
in emerging markets and the sometimes artificial appreciation
of underlying assets. However, global trends point towards a
shift in this status quo in the future.
The majority of these global trends, including the shift of
economic power to emerging markets, the ageing of industrial
countries, higher regulation, new technology and social media,
are well recognised. However, their impact is not always clear.
What do these trends mean for European asset managers and
how do they need to adapt their distribution models to be
successful in an ever more competitive landscape?
To enable decision makers to reflect on how best to create
competitive advantages in distribution, as well as developing a
framework for discussion, we have set out a series of potential
scenarios and their plausible implications. Our analysis is based
on six key drivers of change which have the potential to change
the asset management industry:
Increase in regulation
Increased exposure to emerging
markets
Change in investor trust and loyalty patterns
Focus on pension and retirement products and solutions
Increased separation of alpha and beta and competition from other financial products
Increasing use of technology to reach investors
1
2
3
4
5
6
Introduction
11
We identified twenty different scenarios by combining these key
drivers. Based on in-depth interviews with a number of industry
players (asset managers and distributors) we then assessed the
most likely scenarios that could materialise in the coming five to
ten years and their implications on distribution models within
the asset management industry. During our consultations with
industry players there was unanimous agreement on almost
all key drivers of change (with the exception of technology)
with slight differences on the most likely scenarios and speed
of impact on the industry.
This report concentrates on the longer term changes affecting
European asset managers distributing UCITS and Non-UCITS
mutual funds within and outside Europe to institutional and
retail investors. A number of drivers are already at work,
ranging from tighter regulation within the AM industry to
the rise of emerging markets. Some asset managers have
already positioned themselves to profit from these shifts.
Understanding the drivers of change and defining a clear
strategic positioning and response will be key to success.
A failure to do so could lead to a loss of positioning and market
share over the long run.
12
13
Key Drivers
of Change
Rethinking
Distribution
14
Key Drivers of Change
Six key drivers of change will impact the future fund distribution paradigm:
from other financial products
15
Focus on pension and retirement products and solutions
Increase in regulation
Increased separation of alpha and beta and competition from other financial products
Increasing use of technology to reach investors
Ageing population in major marketsIncreased pension liabilities & public expenditureLimits of pay-as-you-go systems
Stricter and more uniform regulationIncreased regulatory cost and burdenIncreased focus at the point of sale with diverging
rules at national levelIncreased protectionism
Rise of outcome-oriented products*ETF growthIncreased competition from substitute products
The emergence of mobile technologyGrowing impact of social mediaTargeting a new generation of customers
Increased exposure to emerging markets
Change in investortrust & loyalty patterns
Shift in economic powerPerformance of emerging market fundsGrowing middle-class in emerging marketsSuccess of UCITS in emerging markets
Trust deficitDemand for higher transparencyDiminishing client loyaltyLess captive clientele
AMindustry
Figure 1
Multiple drivers of change are at work in the Asset Manangement (AM) industry
* Outcome-oriented products include liability-driven investments, capital-protected, absolute return and income-oriented products
16
Increase in regulation
The increase in regulation will hit all financial services sectors.
Within the AM industry, as former CESR Chairman Eddy
Wymeersch stated, “like it or not, there is a real avalanche of
regulation coming”. According to EFAMA there are over 25
European and US regulatory initiatives that the European
fund market is being forced to deal with, including UCITS IV,
AIFMD, MiFID II, Basel III, Solvency II, Dodd Frank and Fatca[1].
Regulation is therefore clearly one of the main challenges facing
the industry (see figure 2).
In the past, regulators were more strongly focused on products
which, while increasing costs for asset managers, also enhanced
the development and growth of the industry. As an example,
the UCITS Directive is often cited as one of the most successful
EU initiatives and has been such a success that the UCITS
brand is now recognised as the leading globally distributed
investment product.
With the recent financial crisis and increased political pressures,
regulators have become more focused on investor protection
at the point of sale. This may result in both higher costs for
asset managers and distributors, as well as distortions within
the financial services industry such as product arbitrage by
distributors.
STRICTER AND MORE UNIFORM REGULATION
Fund regulation will become much stricter and more uniform
with the arrival of ESMA (European Securities and Markets
Authority). While supervision will remain with national
regulators, ESMA will be able to issue “regulatory technical
standards” which will be legally binding and become national
law across all EU Member States. This will contribute to further
harmonisation of national regulations and help create a
higher level playing field. UCITS IV and other directives are
set to provide more stringent rules within the industry but
also provide new opportunities for cross-border distributors
and asset managers.
Figure 2
What is the biggest challenge you anticipate facing in 2011?
1
Source : Linedata, Looking forward: State of the AM industry Survey 2011
Market Volatility; 17%
Regulations; 43%
N/A; 3%
Investor/Client Confidence; 37%
[1] Ignites, Regulation avalanche a worry for Europe, 16 March 2011
INCREASED REGULATORY COSTS AND BURDEN
As an example of regulatory burden and costs, the European
Commission estimated the implementation cost of UCITS IV
at around EUR 1bn[2]. Regarding the impact of the AIFM
Directive across Europe, Charles River Associates prepared
a report for the FSA in which a one-off compliance cost of
up to EUR 3.2bn with ongoing compliance costs of around
EUR 311m were expected[3].
INCREASED FOCUS AT THE POINT OF SALE
Since the introduction of MiFID in 2007, regulation has put
more emphasis on distribution and on conflicts of interest.
In the UK, the RDR (Retail Distribution Review) will fundamentally
change the way the market for retail investments is structured
and operates. One of the key objectives of RDR is to address the
potential for adviser remuneration to distort customer outcomes.
Other regulations like Basel III and Solvency II may also indirectly
impact the distribution of investment products. Due to capital
and liquidity requirements, large investors and distributors like
banks and insurance companies could potentially reduce their
exposure to certain higher-risk asset classes. Instead, they may
favour the offering of “on-balance sheet” savings products to
their clients.
INCREASED PROTECTIONISM
Emerging markets may offer significant opportunities for
European funds if they decide to adopt the UCITS brand to
channel their savings into well-regulated vehicles. As UCITS
funds have already been enjoying a growing success in Asia,
Latin America and in the Middle-East for the last five to ten
years, local and/or regional initiatives may emerge to take
greater ownership of asset growth. In Asia for instance, support
is eroding for UCITS funds with the recent regulatory changes in
Hong Kong, such as the requirement of investor characterisation
before the sale of any product containing derivatives.
LOOKING FORWARD: CAN REGULATION DISRUPT THE
EXISTING DISTRIBUTION MODEL?
Increased regulation will have implications for both the asset
managers and distributors. Indeed, it may further strengthen
the power of the distributor, but it may also level the playing
field among the investment products sold via the same
distribution channels. Outside the EU, there are risks that
higher barriers to entering emerging markets may prevent
European players from tapping into this new source of growth.
The question should be how the AM industry will be able to
mitigate those risks.
Figure 3
Times are changing
Liquidity
requirements
IMD II
Bank
capital
rules
Consumer
protection
Solvency II
Corporategovernance &
executiveremuneration
PRIPs
UCITS V
Depositaries
AIFMD
MiFID II
UCITS IV
Asset Management
Insurance
Banking
[2] Commission Staff Working Document, Impact Assessment related to implementation measures of
UCITS IV, April 2010
[3] Charles River Associates, Impact of the proposed AIFM Directive across Europe, October 200917
18
Increased exposure to emerging markets
As GDP growth in emerging markets is expected to increase
more rapidly than in OECD countries over the next decade,
there will be a continued and inexorable shift of economic
power from OECD countries to SAAAME (South America, Africa,
Asia, and Middle East). This will significantly impact the AM
industry, both in terms of investment decisions and distribution
strategies. PwC’s latest analysis anticipates that the GDP of the
largest E7 emerging economies will overtake the current G7
economies by 2020, and China may already have surpassed the
US by the end of the decade[4]. Currently, China has a population
of 1.3 billion and one of the highest savings rates in the world
(53.6% in 2009). It will also have 12 million Chinese millionaire
households by 2020 and its number of middle class urban
households will have trebled[5].
ATTRACTIVE INVESTMENTS
Driven by a low interest rate environment in Europe and a
limited growth potential, investors appetite for emerging
market products has grown. As an illustration of this, the net
sales of emerging market funds increased by 76% in 2010 to
reach more than EUR 100bn, i.e. 59% of total net sales in Europe
(see figure 4).
ATTRACTIVE FUND DISTRIBUTION DESTINATIONS
Asia is the second-largest market for UCITS products after
Europe, accounting for 40% of net sales over the past three
years[6]. While the penetration of European fund managers in the
largest emerging markets remains low, significant opportunities
may arise in the future. Asia accounts for 60% of the total world
population but holds only 13% of AuM (see figure 5).
2
[4] PwC, The World in 2050 - The accelerating shift of global economic power: challenges and opportunities
[5] McKinsey Global Institute
[6] PwC and FSC (Financial Services Council), Asia Region Fund Passport, The Future of the funds
management industry in Asia, November 2010
Source : Lipper datadigest
Source : PwC
Figure 4
Net sales of European domiciled funds (EUR bn)
Figure 5
Amount of AuM compared to population (% of the world total)
2007 2009 2010
300
200
100
0
-100
-200
-300
-400
30.2
Investing in emerging markets
Total
91.657.1
190.4
100.7
170.7
-305
2008
N.A. No data available for net sales of
emerging market funds in 2008
N.A.
Asia Americas
70%
60%
50%
40%
30%
20%
10%
0%
60% Population
AuM
13%
7%
52%
35%
EU
13%
19
THE SUCCESS OF THE UCITS BRAND
Since its creation in December 1985, UCITS have managed to
build an international brand recognition. According to PwC’s
GFD Poster, as at end 2010, 13% of cross border registrations
occur outside Europe, with 77% of these registrations being
from Luxembourg domiciled funds. Market data suggest
that between two-thirds and three-quarters of all existing
offshore funds distributed in Asia are structured as UCITS and
that 90% of all new offshore funds sold in the region are UCITS.
Asian investors could account for 20% of total UCITS assets[7].
LOOKING FORWARD: HOW WILL EU DOMICILED FUNDS
BE ABLE TO MAINTAIN THEIR DOMINANCE IN GLOBAL
FUND DISTRIBUTION?
UCITS funds have already managed to successfully enter
international markets but they may face increased competition
from emerging markets in the future. Therefore, the following
questions may be raised:
It is natural to assume that, sooner or later, the domestic
asset management industry of the emerging economies will
either want to expand their operations or control their level of
access to foreign investors, including those in the EU. However,
can we really expect that European asset managers will have
to compete with emerging market players in both emerging
markets and in Europe?
Given the global desire for increased exposure to growth in
emerging markets, can emerging market players develop
a global rival to the UCITS brand, and if so, what is a
realistic timeline for this to occur within, if at all?
As seen throughout economic history, emerging economies
rely on protectionism to develop and strengthen their
domestic industries before allowing foreign entrants. What
options does the EU have to mitigate this risk? How should
European funds maintain and develop their penetration in
emerging markets?
“Europe has created a global standard
in Financial Services and has the
opportunity to leverage on it especially
after the financial crisis. Five years ago,
when our global Asset Management
team was meeting Asian regulators, a
majority of the questions were posed
to our US partners, now they are asked
to our European team.”
Marc Saluzzi – PwC Luxembourg, Financial Services Leader
[7] According to Terry Pan, Managing Director and Head of Hong Kong Business at JPMorgan Asset
Management , in Global Investor Magazine, December 2010
20
Change in investor trust and loyalty patterns
While investors are putting money back into investment funds,
the recent financial crisis has damaged distributor and adviser
reputation. The loss of investors’ trust and loyalty stems from
various factors. These include lack of transparency, performance
and cost. Lack of transparency (e.g. risk disclosures) has been
one of the major causes now being addressed by the regulator,
however the industry will need to work on consistent low
performance and high costs for investors in order to regain
their trust. In the post-Madoff environment, investors are still
concerned about trustworthiness, which remains the most
important factor in choosing an adviser. A PwC/UCL survey
of retail investors in 2009 showed that only 20% of investors
were satisfied with their financial advisers (see figure 6).
Distributors and advisers are now spending more time with
clients explaining their investment choices and showing them
information about the funds. As distributors and advisers strive
not to push products, some investors still perceive them as not
much different from salesmen.
However, a trust deficit does not necessarily lead to investors
switching their providers, as shown by Eurobarometer[8]:
“While only 13% of EU consumers switched their providers for
savings and investment products, only 35% of the ones who
did not switch believed their current bank was providing good
value for money”.
3
Figure 6
Trust deficit of financial advisers. Are you satisfied with your financial adviser(s)?
Source : PwC/UCL Retail Investor survey 2009
Strongly disagree; 10%
Neutral; 47%
Strongly agree; 9%
Disagree; 14%
Agree; 20%
[8] European Commission, Eurobarometer, Consumers’ views on switching service providers, Analytical
Report, January 2009
PRIME RELATIONSHIPS
Today, fund distributors and advisers have a significant
negotiation power towards fund managers. This is evidenced
by the fact that fund managers have to give between 40% and
60% of their management fees to distributors and advisers due
to their prime relationships with an often captive clientele.
With increasing pressure from regulators and investors for
transparency, especially on costs and conflicts of interest,
the future of prime relationships will depend on how loyal
investors will remain towards their distributor and adviser.
21
ROLE OF THE INTERMEDIARIES TOWARDS END-INVESTORS
Fund distribution is mostly a B2B business for fund managers
and there is a continuous trend in the fund industry towards
further intermediation. The share of households ownership in
investment fund assets has been decreasing over the last years
while insurers, pension funds and other financial intermediaries
have been continuously increasing their fund asset ownership
on behalf of end-investors (see figure 7). With a potential shake-
up of investor trust and loyalty, and regulatory changes, the
distribution models may become more complex. This could lead
to a clear distinction between the roles of pure distributors (e.g.
Stock Exchanges) and pure advisers. On top of these two roles,
we anticipate the emergence of new types of intermediaries
which will help investors to make more informed investment
decisions (e.g. social media).
LOOKING FORWARD: HOW WILL THE RELATIONS
BETWEEN FUND MANAGERS AND DISTRIBUTORS/
ADVISERS EVOLVE?
With increasing investor and regulatory scrutiny on the
distribution of investment funds, the question is how much
the model of large distributors, generally vertically integrated
groups in Continental Europe, will change. In Anglo-Saxon
countries, with investors welcoming the end of product
influence, how will advisers position themselves towards
traditional distributors?
Figure 7
Investment fund asset ownership (share in percent)
Source : EFAMA Factbook 2010
General government
Insurers & pension funds
Other financial intermediaries
MFIs
Non-financial corporations
Households
9.1
2004 2005
42.8
10.8
11.6
22.5
2.5
9.8
39.9
10.1
13.4
24.7
2.8
9.6
2006
37.0
9.5
15.6
25.4
2.9
9.2
2007
35.5
8.7
17.0
26.4
3.2
9.0
2008
34.6
8.8
15.6
28.6
3.4
7.8
2009
32.4
8.6
15.8
32.0
3.4
22
Focus on pension and retirement products and solutions
According to the United Nations figures[9], the proportion of
the world’s population aged over 65 is set to more than double
by 2050, to 16.2% from 7.6% currently. By 2050, approximately
1 billion people will be over 65 years. More specifically in
Europe, 50% of the population will be more than 55 years old
by 2050 (see figure 8). Given that a large majority of assets under
management is held by the eldest part of the population, the
fund industry bears significant risks of asset outflows due to
decumulation (the conversion of assets accumulated during
an employee’s working life into pension income at retirement
age). On the other hand, as governments are increasingly
moving away from pay-as-you-go systems and as decumulation
also embodies a significant new risk (longevity risk) for the
record number of future retirees, significant opportunities for
fund managers may arise provided that they are able to offer
adequate long-term pension and retirement solutions.
INCREASED PUBLIC PENSION EXPENDITURE
By 2050, for every retiree in the EU, there will be only two
workers, which represents a major deterioration from the
current ratio of 1:4. The ageing of the population will also
affect emerging markets like China which will have five workers
for every retiree by 2020, compared to a ratio of 1:10 in 1990.
As a consequence, public pension expenditure will grow to
represent on average 12.4% of the GDP in 2050 in Europe
(vs. 10.3% today[10]) and up to 16% in Spain (see figure 9).
4
[9] United Nations, World Population Prospects, the 2010 revision
[10] The 2009 Ageing report (European Commission, 2008)
[11] European Commission – Sustainability report 2009
In the current context, the cost of caring for retired people will
profoundly affect growth prospects and will increase the level
of debts. Even a consolidation of 1% of GDP per year over 20
years may not fully bring back debt to the 60% GDP reference[11].
Figure 8
Western Europe Population (millions)
Source : World Bank
2010
Age 22-55
Age > 55199
62%
123
38%
2050
166
50%
167
50%
350
300
250
200
150
100
50
0
23
THE MOVE FROM PAY-AS-YOU-GO SYSTEMS WILL
LEAVE FUTURE PENSIONERS TO DEAL WITH CRITICAL
INVESTMENT DECISIONS
The greying of Europe, coupled with the increased longevity of
the population, will pose a problem to pay-as-you-go pension
schemes. European governments are reacting to this issue
by shifting the responsibility of retirement planning to the
working-age individuals. This, however, creates a new challenge
for individuals who now have to make investment decisions for
their own long-term financial well-being. These decisions need
to take into account the savings required to meet the longer
period of retirement due to the increase in life expectancy
(longevity risk), as well as considering the risk of investment
and inflation.
THE CHALLENGE OF THE AM INDUSTRY TO PROPOSE
PENSION AND RETIREMENT SOLUTIONS
The asset management industry has a critical role in supporting
individuals by delivering products suited to their retirement
needs. Products must be designed, not only to save for
retirement, but also to allow steady income flow after the
accumulation phase to safeguard the investor against
insufficient cash flows in old age.
LOOKING FORWARD: HOW DO AM DISTRIBUTION
STRATEGIES NEED TO ADAPT TO TACKLE THE RISKS
AND OPPORTUNITIES ARISING FROM THE AGEING
POPULATION?
As governments withdraw from pay-as-you-go systems, it raises
the obvious question as to who will accept the future risks of
providing for retiree income when the state will no longer do
so. Will the risks fall to the retirees, who must ensure that they
set aside sufficient savings to draw down in the future, and if
they fail to do so, end up suffering the consequences i.e. old
age poverty? Or will the investment industry be bound to carry
the risk, whereby if assets under management fail to produce
the required returns needed for the steadily larger outflows
of retiree income, the losses must be covered by the product
manufacturer?
In this case, what would be the impact on the competitiveness
of the asset management industry, considering that today,
the fund industry is not fully equipped to offer pension and
retirement solutions?
Figure 9
Increase in public pension expenditure by 2050(% expected GDP)
Source : European Commission
ES
20%
15%
10%
5%
0%
-5%
Current level (GDP pp)
Additional expense (GDP pp)
7.1%
8.4%
RO
8.2%
6.6%
IT
0.7%
14.0%
FR
1.2%
13.0%
HU
2.3%
10.9%
DE
1.5%
10.4%
LT
3.6%
6.8%
CZ
2.4%
7.8%
SK
2.6%
6.8%
UK
1.5%
6.5%
IE
4.0%
4.0%
Total
2.1%
10.3%
PL
2.5%
11.0%
24
Increased separation of alpha and beta and competition from other financial products
The increased specialisation of investment funds, to better
match investor’s constraints, and the competition from
substitute products are two major drivers likely to reshape
the investment fund industry in the coming years. On the one
hand, the increased specialisation of investment funds has
been driven by the growing need of investors to diversify their
portfolio to comply with specific risk/returns constraints leading
to further sophistication (such as LDI, etc.) of the industry.
On the other hand, the competition from other financial
products is caused by the development of savings products
which can be packaged with the same content into different
wrappers and be sold to the same investor, via the same
distribution channels. As from 2006, the share of structured
products and ETP relative to the European fund industry has
steadily grown from 9% in 2006 to 13% in 2009 after a peak of
17% in 2008 (see figure10).
THE SEPARATION OF ALPHA AND BETA
Over the past years, the AM industry has gradually split between
products offering pure exposure to beta, like index funds or
exchange-traded funds (ETFs), and products delivering alpha
(see figure 11). This trend is leading asset managers to either
provide cheap beta, which results in pressure on fees of active
managers not able to create alpha, or be able to provide alpha to
demand a premium. However, core-satellite allocation strategies
are bridging active and passive exposure to propose investment
solutions to institutional investors. The strength of the core-
satellite allocation is to provide institutional investors with an
adequate level of transparency for performance attribution
with the clear isolation between the alpha and the beta.
5
Figure 10
Evolution of mutual funds in Europe vs. substitute products (EUR bn)
Source : PwC Analysis
2006 2008 2009 2010
7 000
6 000
5 000
4 000
3 000
2 000
1 000
0
5 956
UCITS Assets
Structured Products & ETP
558
4 543
764704
2007
6 159
782
5 990
801
5 315
INCREASED COMPETITION FROM SUBSTITUTE PRODUCTS
Financial innovation and the broader range of financial
products is constantly giving investors alternative means to
achieve their financial goals. In the past, money market funds
substituted for bank deposits and equity funds substituted for
direct holdings of equities. More recently structured products,
notes and certificates intended for different investors have
become close substitutes for investment funds. The threat
for the fund industry is all the more important when the cost
to switch to structured products and the perceived level of
product differentiation are both very low. In addition, current
regulation is creating distortions allowing for product and
distribution channel arbitrage.
While most of the substitute savings products cannot deliver the
same level of investor protection, as shown during the recent
financial crisis, substitute products have proved to be efficient from
an investor point of view. Substitute products allow for a broad
range of asset classes and investment strategies and can as well be
developed and brought to the market faster to satisfy new market
developments and new trends. Substitute products developed
by the insurance industry are often marketed with a focus on
“tax optimisation” (e.g. investment life-insurance contracts).
Substitute products not only provide investors with fast
and targeted solutions but can also prove advantageous to
distributors and issuers. With regulators demanding higher
capital requirements, banking and insurance distributors are
shifting their product focus to minimise the need for additional
capital. In doing so, they might prefer to sell cash deposits
(vs. money market funds). This could be a more difficult
arbitrage going forward. Moreover, structured products
are attractive to issuers and distributors who look for both
quick revenue streams and churn in customer portfolio. Such
products have high upfront fees and set maturities in contrast to
mutual funds which are pre-dominantly open ended and offer
a regular revenue stream for asset managers and distributors
over the holding period by the customer.
LOOKING FORWARD: TO WHAT EXTENT WOULD THE ASSET
MANAGEMENT INDUSTRY BE ABLE TO COMPETE WITH
SUBSTITUTE PRODUCTS?
Investment funds protect investors through strict investment
and diversification rules, efficient supervision of both the fund
and the management company, the separation of management
company and safekeeping of the assets. The European
Commission aims to create a robust and coherent framework
for PRIPs which will provide for consistent and effective
investor protection and a level-playing field for distributors
and originators. However, it is still uncertain how investment
funds will be able to gain market share by competing in terms
of product efficiency (e.g. capital protection, cost and tax
efficiency…).
Figure 11
Comparative growth of funds, by investment strategies
Source : PwC Analysis based on Lipper FMI figures
Bond
Equity
Mixed
MM
Absolute returns
ETFs
Traditional strategies
Alpha strategies
Beta strategies
+7.9%
+11.9%
+20.2%
+7.3%
-3.8%
+6.7%
2009 (% net sales/AuM)
+9.6%
+19.4%
+15.3%
+11.7%
-10.2%
+4.0%
2010 (% net sales/AuM)
25
26
Increasing use of technology to reach investorsThe development of mobile technology and the emergence
of social media offers individual investors innovative ways to
access and scrutinise the investment fund industry. It also
represents a new challenge for fund promoters who are now
required to evolve their marketing strategy to be visible on
these new communication channels.
THE EMERGENCE OF MOBILE TECHNOLOGY
The greater use of mobile technology has spurred the
development of applications tailored to the asset management
business. As shown in figure 12, the number of active users of
mobile banking and related services is expected to multiply by
16 by 2015 (close to one billion people). Distributors on the front
line have started providing their clients and prospects with real
time accessible applications to track their fund performances
and to carry out subscription and redemption operations.
For instance, in the UK, one of the biggest fund distributors
is already proposing an application on iPhone allowing their
clients to get information regarding fund price, performance
and management fee on a range of more than 1,000 funds.
Clients also have the opportunity to invest through the fund
platform.
GROWING IMPACT OF SOCIAL MEDIA
Social networking has become a major trend for both personal
and professional purposes. Social networks allow people to share
information, opinions and even recommendations on all types
of topics. While the phenomenon is already widespread in many
countries (see figure 13), is there really a strong impact on the
fund management industry to be expected from social media?
6
Figure 12
Number of active users of mobile banking and related services, forecast (in millions)
Source : fst
2009
55
2015
1000
750
500
250
0
894
27
TARGETING A NEW GENERATION OF CUSTOMERS
Investors still favour their distributors and advisers to access
investment products, although they are likely to use many
channels to access both advice and products. In the future
these prime relationships could be challenged by the new
generation of students and young professionals, who may be
more financially literate.
LOOKING FORWARD: IS THE EMERGENCE OF NEW
TECHNOLOGY LIKELY TO DISRUPT THE CURRENT
DISTRIBUTION CHANNELS?
The status of social media is steadily evolving from a leisure
activity to a strategic marketing tool for the industry. What will
the future role of social media be within financial services?
Will new media and new generations of investors and advisers
behave in the same way as previously or will they adopt new
behaviour?
Can we expect tomorrow’s consumers of financial products to
place as much trust in personal relationships and one-to-one
advice as before, or will they become more remote and data
guided in their investment decisions?
Will a pervasive internet coupled with the explosion of social
media and new norms of communication have a significant
effect on the client and adviser relationship?
Will the new applications and channels afford real competitive
advantage to savvy firms, or can we expect to see limited
innovation in terms of client relationship management?
“ We are told that RDR is the next big
thing we need to be thinking about,
but I think it pales in significance
compared to the impact social media
will have on our industry.”
Phil Calvert, IFA Life - The Social Network of IFAs and Financial Planners
Figure 13
Share of social networking users, % (2010)
Source : Pew, 2010
0% 10% 20% 30% 40% 50%
US
UK
South Korea
France
Spain
Germany
Turkey
Japan
China
India
46%
43%
40% 40%
36%
34%
31%
26%
24%
23%
12%
28
29
Scenario
Planning
Rethinking
Distribution
30
Scenario Planning
Based on the combination of key drivers of change we identified twenty different
scenarios (four scenarios for each reasonable combination of two key drivers)
around the following themes:
We then assessed the most likely scenarios that could materialise in the coming
five to ten years and their implications on distribution within the AM industry.
31
Scenario PlanningDistribution Models
Regulation and changes in customer behaviour have the
potential to disrupt current distribution models. While a trend
towards open-architecture and the separation of manufacturing
and distribution was announced several years ago, there are
still different degrees of openness in Europe. Open-architecture
means that the fund manufacturer and distributor belong
to different groups but many large European banks are still
debating the choice of selling their own manufactured products
or those from third parties.
In fact, any move will depend highly upon a clear change in
regulation at the point of sale and/or client captivity with their
distributor or adviser.
The axes for our scenario planning represent the degree of
regulation at the point of sale versus the clientele captivity,
where we attempt to chart the likely outcome of this fusion
of established captive clientele and further liabilities on
distributors (see figure 14).
Current distribution models will prevail given that regulation at
the point of sale will not increase and distributors will still benefit
from a captive clientele.
With higher regulation at the point of sale and less captive
clientele, distribution will become more complex with a
segregation of advice, distribution and asset management. There
will also be a growing number of gatekeepers between AM and
distributors (wrap platform, distributors’ fund selection unit…)
Although there will be no increase in regulation at the point of
sale, lower captive clientele will lead to investors increasingly
evaluating and comparing products and advice offers to meet
their needs. This will result in a higher competition between
distributors, as well as AMs, to gain market share.
Continental European model
Business as usual
Anglo-Saxon model
Increased competition
Low High
While investors remain sticky to their distributor, regulatory
pressure at the point of sale and at national levels will result in
higher liability for distributors who may favour selling their own
products to better control increased costs and risks. This would
lead to players increasingly concentrating asset management,
distribution and advice activities within their own group rather
than sourcing these from various players.
Captive clientele
Reg
ulat
ion
at t
he p
oint
of
sale
Hig
hLo
w
Figure 14
1
32
WHERE DO WE STAND?
The structure of the fund industry has changed relatively
little over years. According to a speech of Mario Draghi[12], the
governor of the Bank of Italy, no less than 90% of Continental
European retail management activity is carried out under the
vertically integrated model compared with less than two thirds
in the US and the UK.
In Continental Europe, the major AM firms remain generally
fully-owned subsidiaries of large banking and insurance groups
but recent events may change this situation. During the latest
financial crisis a few financial groups sold their AM arms to
restore their capital strength, often because these subsidiaries
are generally more autonomous and easier to sell than core
banking activities like retail and investment banking units.
In addition, small independent boutique-style asset
management firms have recently managed to rank among
the top European master groups in terms of net sales.
While the integrated model still remains dominant, we
believe that increasing regulatory scrutiny and/or weakening
of the prime relationships between clients and distributors,
have the potential to fundamentally impact the distribution
marketplace.
WHAT DO WE EXPECT IN THE LONG TERM?
With increased regulation at the point of sale, the asset
management value chain will become more complex as
pure advice will be segregated from pure distribution.
This evolution will allow the AM industry to implement a clear
difference between the buy- and sell-sides, and independent
research and advice. However, the pace of evolution may
vary. As long as clients remain captive to their distributors,
the distribution models will not radically change. However,
as investor scrutiny increases and financial education improves,
investors will increasingly look for best of breed products and
their respective providers. Looking forward, we believe that over
the next five to ten years, the Anglo-Saxon and the Continental
European models may evolve differently and we anticipate an
increasing gap between them. While in Continental Europe,
investors will remain captive to their banks, consumers in
the Anglo-Saxon countries will welcome the end of product
influence and recognise the intrinsic value of advice.
Increased regulation at the point of sale will further widen the
gap between the two models. On the one hand, Anglo-Saxon
regulators are trying to move the industry away from selling
products towards true independent advice which will result
in a clearer segregation of asset management, distribution
and advice. Indeed one of the key plans of the FSA’s Retail
Distribution Review in the UK for instance is the Adviser
Charging regime. Under this regime, advisers will no longer
be allowed to receive commission on the retail investment
products they recommend. This model is likely to disrupt the
way advisers operate as according to JP Morgan research[13],
while 60% of consumer approve Adviser Charging regime, only
8% of the population currently pay for or claim to be willing to
pay for advice on their savings and investments.
[12] Mario Draghi, Transformation in the European Financial Industry: Opportunities and Risks, Frankfurt,
22 November 2007
[13] J.P. Morgan Asset Management, Adviser Charging: putting a price on financial advice, May 2011
Rethinking
Distribution
On the other hand, as Continental European players will
keep to their current commission charging structures, the
segregation between pure distribution and pure advice may
be slow. Increased regulation at the point of sale will encourage
distributors to develop their own products to better control the
costs and risks of distributing funds to a still captive clientele.
This would lead players to increasingly concentrate on asset
management, distribution and advice activities within their
own group rather than sourcing these externally.
WHAT WILL BE THE KEY IMPLICATIONS?
As we move towards a clearer segregation of pure distribution
and pure advice, two differing distribution models will exist.
Implications of the Anglo-Saxon model towards a segregation of
asset management, distribution and advice
Strengthen Customer Relationship Management
The Anglo-Saxon model will be characterised by a greater
fragmentation of the distribution marketplace. To promote
their products, AM firms will need to set-up marketing and
sales teams to improve their proximity to distributors and
advisers. Customer Relationship Management will be essential
to listen to both distributors and advisers’ needs and liaise with
them on a regular basis to inform them on significant market
movements, new trends, changes in portfolio asset allocation
and fund performance.
Focus on Client Services
Distributors and advisers will desire increased added services
that allow them to decrease their administrative and compliance
burden. In addition, AM firms can develop services like alerts
and reportings that distributors and advisers could provide
their clients. With the diminishing influence of commission
based advice, added value services provided by AM players
will become all the more important for advisers.
Build brand to enhance pull from investors
The segregation of asset management, distribution and advice
will put greater responsibilities on AM firms to develop their
brand and differentiate themselves. As the industry will move
more from a push to a pull approach, where investors will have
a greater power in investment decision-making, the AM brand
will be critical to attract investors’ interest.
Offer tailor-made products to distributors and advisers
Advisers and distributors will have different needs that AM
firms will need to address. To justify the intrinsic value of advice,
advisers will be offering more sophisticated services and AM
firms will have to develop tailor-made products in order to
develop solutions in close collaboration with advisers that
meet end-investor needs.
33
34
Implications of the Continental European model towards further
vertical integration
Integrated AM fi rms should maintain the widest possible
range of products
Large distributors like banks and insurance companies will
require their AM arms to off er a wide range of products
suitable for diff erent categories of clients (retail investors,
HNWI, corporate and other institutional investors). In order to
address the needs of their various clients and react rapidly to
any change in client preferences and market fl uctuations, they
will require AM products to cover all the main markets through
most asset classes and investment themes. This means for
integrated AM fi rms that they will have to maintain off -the-shelf
funds with low AuM and therefore lower profi tability levels.
Independent AM fi rms should focus on product innovation
and niche products
As integrated AM fi rms will already have to manage large
product ranges they may no longer have huge opportunities
to develop and test new investment ideas and strategies.
As a consequence, they will leverage on independent AM fi rms
that can demonstrate capacity to deliver robust performance
through new investment strategies. Integrated AM fi rms will
hence look for investing in other AM funds (e.g. funds of funds),
develop long-term partnerships (e.g. seed money, incubator)
and develop a network of small AM fi rms/boutiques.
Improve communication between AM fi rms and
distributors
With increasing regulation at the point of sale, distributors will
need to control compliance risks and therefore require AM
fi rms to provide distributors with high transparency, training,
adequate marketing tools and any other relevant services.
As distributors will increasingly rationalise their processes, they
will limit the number of their AM providers and try to develop close
relationships and improve the fl ows of information with them.
Decrease of management fees and introduction or increase
of performance fees
Regulation will heap additional costs and burden on distributors.
As it will be diffi cult for distributors to pass on these costs to
investors, they are likely to put pressure on AM fi rms, especially
given the power they have over a captive clientele, to increase the
levels of commissions resulting in decreased management fees.
AM fi rms could mitigate this decrease in their revenues through
increasing or setting-up higher levels of performance fees.
35
The economic and demographic fundamentals of emerging
markets support the view that it will be the “future growth
engine” of the global fund management industry. This key driver
will pose both opportunities and threats to the European asset
management industry in the future, which is captured through
the scenarios (see figure 15).
Currently the total funds under management (FUM) across
Asia (ex-Japan) and South America account for about 10% of
global FUM which is set to increase in the future. Given these
prospects the question on emerging competition from local
players stemming from these regions should be considered.
These players could not only compete with European players
in their local markets where they have the respective expertise
and understanding but also in European markets where they
would compete predominantly on emerging market products.
Scenario PlanningGlobal Fund Distribution
EU domiciled funds will lose their dominance as other regional
or national frameworks reach critical mass. They may even be
locked-out of the major emerging markets and have to compete
in Europe with new entrants from emerging markets.
Despite increasing competition from emerging market players
in emerging markets, the European AM market remains
out-of-reach and still dominates international fund
distribution activities.
Other national/regional fund frameworks will be developed and
reach critical mass to bring safekeeping of assets to emerging
markets. European AMs will have to cope with increasing
regulatory barriers and competition in emerging markets.
Comparative advantage
Loss of global dominance
Business as usual
Hindered path
In emerging
markets only
In emerging markets
and in Europe
EU domiciled funds will have a comparative advantage for
international distribution but European players will face increased
competition from emerging market players in both their home
countries and Europe.
Competition from emerging market players
UCI
TS /
AIF
M b
rand
Dom
inan
tCh
alle
nged
Figure 15
2
36
We have taken this key driver into account on the horizontal
axis on which we have indicated whether the competition from
emerging market players will take place in emerging markets
only, or also in Europe.
In the past, the UCITS brand has been key to the success of
European players within a number of Asian and emerging
markets. As mentioned in the previous section a significant
portion of sales of European fund stems from Asia and more
than 5,000 UCITS products are being sold in this region.
Moreover, the newly promulgated AIFM Directive, intended to
overcome the barriers and inefficiencies created by the current
patchwork of national regulation, has also the opportunity to
repeat the current success of the UCITS brand and become
a trusted and attractive international brand leading to the
expansion of the Non-UCITS market. On the other hand, there is
rising interest within the Asian market to develop an Asian fund
passport to overcome national regulatory barriers, effectively
challenging the dominance of the UCITS brand. This concept
is demonstrated through the vertical axis of the figure above.
WHERE DO WE STAND?
Currently, Western asset managers can expand freely in Europe
and in a number of emerging markets without facing intense
competition from emerging market product providers. The
European players compete mainly among themselves and with
other international asset managers on more or less a level
playing field. Although local players are gradually emerging,
so far competition from them remains marginal. Moreover,
the recognition of UCITS worldwide has opened the door for
this product to several foreign countries, to the point where no
other national framework is currently able to compete.
WHAT DO WE EXPECT IN THE LONG TERM?
European asset managers will have to compete with emerging
market players in both emerging markets and in Europe
We believe emerging market players will strengthen their
position in the local markets and leading players, already well
established on their market, will attempt to increase their client
base by targeting new regions. Moreover, the growing needs of
European institutional investors searching for higher returns is
likely to attract foreign competitors. Hence we expect that ten
years from now, European asset managers will have to compete
with emerging market players in both emerging markets and
in Europe (providing emerging market expertise to European
investors).
UCITS brand can be expected to retain its international
dominance
The development of a distribution passport is a long term
investment, and despite the advantages of European integration,
the UCITS product was more than 20 years in development
before it could reach its current level of recognition – and it
still has further to go.
Discussions around the Asian passport and regulation
encouraging national protectionism can be perceived as a
potential threat for UCITS but this new label is far from being
established. Emerging countries are lagging behind and we
do not expect another international standard to compete with
UCITS in a foreseeable future.
Hence we believe that the future European asset management
industry will still have a comparative advantage through the
dominance of the UCITS brand across the world. However, European
asset managers will have to adapt to an increased competition from
emerging market players who can also use the UCITS brand to
compete in their local as well as international markets.
WHAT WILL BE THE KEY IMPLICATIONS?
Understand the local market specificities
European Asset Managers may have difficulties in dealing
with investment and product preferences of local investors,
highlighting the necessity to set up a local presence (especially
in sales and distribution). With the support of adequate skills and
expertise in investment and distribution, European promoters
will be likely to deliver attractive performances and adapt their
fund range to local demand. An interactive dialogue between
the sales team and local distributors and investors as well as
a clear process of feedback to, and cooperation with, central
product development teams will be key to success.
Partnering with local managers for expertise
Risks when entering a new market could be reduced through
partnering with local emerging market players to leverage
on their market knowledge as well as distribution power.
Partnerships will also be the dominant distribution strategy
in countries where protectionist regulations prohibit a foreign
market entrant without involvement of local players. However,
careful consideration needs to be taken while choosing the
right partner with clear evaluation of the added value input
and expectations of both partners.
Build brand trust
Brand is a key success factor when entering a market. In this
context, the UCITS brand has been a door-opener for many
large European fund managers. It will be up to the industry
and the European regulators to maintain the brand quality.
Asset managers have now also started to invest in their own
brand to increase their recognition in emerging markets. When
targeting retail investors, building a brand could increase sales
through demand for the specific brand through the investor.
IMPLICATIONS FOR THE INDUSTRY AND
REGULATORS
The tremendous potential of emerging markets provides a huge opportunity for the European fund industry. However, an increasing level of protectionism on behalf of emerging countries may put the potential of distribution of European funds at risk. The establishment of a “Reciprocity agreement” allowing on one side European funds to be distributed freely in selected emerging markets and on the other side, emerging market funds to be distributed in Europe without restrictions would ensure a sustainable and significant growth of the European market for the long term. Another step would be to allow for some Asian and emerging market regulators to be an integrative part of new regulatory developments around European fund regulation. This does not need to go as far as giving such regulators voting rights but instead close consultation, dialogue and weighing their concerns within development of new regulation. These actions should be accompanied by a strong push of the industry to strengthen the trust in the UCITS brand internationally and building of trust in AIFM.
37
38
The ageing population is a trend that raises significant risks
and opportunities for the fund industry. The first risk is that the
flow of investment into the asset management industry will
steadily decline as today’s retail investors turn into tomorrow’s
retirees, with a far smaller workforce taking their place. Another
threat is that the asset management industry might fail to
provide the guaranteed return and income products that
are increasingly required by an ageing market for retirement
funding. The flip side is that the industry still has time to develop
these products and to position itself to seriously compete in a
market traditionally dominated by insurance firms. According
to EFAMA, a retirement plan, with unified standards across
the EU and certification given by the appropriate regulatory
body, could be introduced. This “Officially Certified European
Retirement Plan” (OCERP) proposed by EFAMA could take a
form of a wrapper and form part of both Pillar 2 and Pillar
3. This would create a level playing field for retirement plan
providers across the EU (insurance companies, banks and
Scenario PlanningPension and Insurance Markets
Despite increased pension savings in voluntary vehicles, the AM
industry will not be equipped to endorse risks and hence compete
directly on the pension and insurance market. However, AMs will
be able to develop partnerships with other pension and insurance
providers to offer long term solutions.
As risk is being transferred to individuals, AM products will
become more relevant to the pension and insurance market.
However, as the population will still rely on public pensions,
the pension and insurance market will only offer limited
opportunities.
New opportunities
Low penetration
Limited opportunities
Business as usual
HighLow
The AM industry will develop adequate long term solutions for
pensioners offering minimum guarantees. Funds will capture a
significant market share within a growing pension and insurance
market as a part of the risk is transferred to individuals.
Savings in voluntary pension and insurance schemes
Ris
k is
tra
nsfe
rred
to
Part
icip
ants
Spon
sors
of
pens
ion
and
insu
ranc
e ve
hicl
es
Figure 16
The pension and insurance market (excl. pillar 1) will not expand
extensively as the population will rely on public pension and
insurance systems and sponsors will still have to guarantee
minimum return on investment.
3
asset managers)[14]. Alternatively, a UCITS-style product
(with revisions regarding the daily liquidity and other features)
could be created with underlying assets and an investment
strategy that aligns with expectations of long-term investors in
relation to risk management, fees and reporting requirements[15].
However, turning a savings product into a retirement solution
which would offer guaranteed lifetime income to pensioners
brings new complexities. These include the obvious investment
and interest rate risks which the asset management industry is
familiar with, but also longevity and early retirement risks, an
issue generally tackled by the insurance sector.
Two main components frame the discussion on this area.
The first is the allocation of risk, and the second is the future
development of voluntary pension and insurance schemes.
If governments withdraw from pay-as-you-go systems, will
the risks fall to the retirees, who must ensure that they set
aside sufficient savings to draw down in the future, and if they
fail to do so, end up suffering the consequences i.e. old age
poverty? Or will the investment industry be bound to carry
the risk, whereby if assets under management fail to produce
the required returns needed for the steadily larger outflows
of retiree income, the losses must be covered by the product
manufacturer? We consider this on the Y axis of our figure 16.
The development of the pension fund and insurance market
will be highly dependent on the growth of voluntary pension
and insurance schemes, and we consider the likelihood of this
on the X axis.
WHERE DO WE STAND?
Pay-as-you-go systems still guarantee minimum pensions
for the near term but the recent financial crisis has impacted
pension policy in the EU as national debts now surpass historic
levels. The trend by which the extension of working lives
combined with a gradual retreat by the state appears to have
accelerated, as the economics of the pay-as-you-go system
cannot be supported in the future due to a combination of
government indebtedness and poor worker-retiree ratios. States
are now pushing towards longer working careers and reviewing
pension benefit provisions with an eye on future affordability.
Recent pension reforms are also developing mechanisms
to encourage private personal savings, mostly through tax
incentives and mandatory default schemes. However, voluntary
pension and insurance schemes still represent a low proportion
of the market, the majority of which still mainly rely on pillar 1
(public finances). In addition, insurance products remain the
preferred retirement voluntary products due to traditional
risk expertise in the sector and regulatory and tax advantages.
WHAT DO WE EXPECT IN THE LONG TERM?
Savings in voluntary pension and insurance schemes will
grow but at a slow pace
With increased levels of public debt and expenditure (which
in themselves require decades to reduce to acceptable
levels), coupled with the growing liabilities of the state
regarding retirement funding for the population, it is clear
that current levels of state support are unsustainable.
Hence, it can be expected that the incentives for voluntary
retirement savings schemes are only likely to increase. States are
likely to continue to put in place, despite their current level of
deficits, incentives for voluntary retirement savings like preferential [14] EFAMA, Revisiting the landscape of European long-term savings, March 2010
[15] PwC/CACEIS, Ideal Fund: Reengineering the fund value proposition, June 2009
39
40
tax treatment for pension plans. Alternatively, mandatory
plans, similar to the Australian Superannuation scheme, may
be introduced. Overall, the awareness of individual investors
regarding the inoperability of the pay-as-you-go system in
the long-term is slowly increasing, especially ‘Generation Y’
(those deemed to have been born sometime between the
late Seventies and the late Nineties) who will be more likely
to invest earlier for the long-term. Either way, private schemes
are forecast to grow, albeit at gradual pace and in response to
public policy.
Risks will be transferred to sponsors of pension vehicles
With the withdrawal of the state from retirement funding,
the obvious question is raised as to who will accept the future
risks of providing for retiree income when the state will no
longer do so. As it seems unlikely that individual investors will
be left alone to bear the risk of their long-term savings, only the
private sector is left. While we strongly believe that the asset
management industry may have a critical role to play in the
area, the extent of the opportunity will be based on a number
of factors described below.
WHAT WILL BE THE KEY IMPLICATIONS?
Partner with insurance companies to develop tailor-made
products embedded in insurance wrappers
When considering the risk of decreasing assets (given that
investment is mainly held by people near retirement age), the
asset management industry needs to consider how they can
gain in a market which will shift to providing future retirees with
investment solutions. However, when it comes to retirement
products, the asset management industry is not currently
equipped to endorse the inherent risks of the decumulation
phase. To do so may impose on asset managers similar
capital requirements now required in the insurance industry.
Instead, an alternative is for the asset management industry
to combine its expertise with that of the insurance industry
to offer more long-term, guaranteed (capital and annuities)
solutions and outcome-oriented products.
Adapt pricing (low margins) required for long term savings
products
Retirement planning is widely recognised as the most vital
long-term savings need of all working age individuals, due to
the changing demographics described previously in our key
drivers. As a consequence, to support the growth of voluntary
savings within pension vehicles, it is important for sponsors of
pension funds to be able to benefit from a scale of economy
whereby low margins can be applied to high volume products.
How this should be specifically accomplished is a matter
of debate, but it seems clear that continuing government
incentives or regulation will form part of the solution. Regardless
of how the volume is reached, it will assist in competitive pricing
and potentially an attractive and innovative fee-structure.
Regarding innovation in the fee structure, in our previous report
published in 2009: “Ideal Fund - Reengineering the fund value
proposition” one of our recommendations was the introduction
of an ‘objective fee’. As the goal of pension vehicles is to meet
the investor‘s financial objectives (i.e. providing investors with
capital at the retirement age rather than to adhere to a fixed
strategy), it was suggested that fees for retirement products
be linked to the risk/return objectives within the investor’s
timeframe. This is intended to align the investor and asset
managers’ goals, and would differ from performance fees which
are based on outperforming a certain level of return.
41
Rethinking
Distribution
Brand and investor trust is key due to the long-term
commitment of the investors to the product
Assuming the high level of responsibility borne by the
promoter of retirement vehicles when considering the
substantial fi nancial commitment required in the long term
by investors, brand and investor trust will be a key factor of
success when attracting clients to a pension plan. This may
require signifi cant investment on the part of pension product
providers, particularly in the wake of the recent fi nancial crisis,
to acquire the trust of long term clients.
More than any other sector being examined, the area of
pensions is the most dependent on government reaction –
due simply to the fact that, while state pensions off er a safety
net, retail investors will be less inclined to save for retirement.
However, while the timeline to transition from the current level
of state benefi ts to the (presumably much lower) levels to be
off ered in the future is unclear, what is largely agreed is that
the shift of responsibility away from the state and to the private
sector will eventually occur. This should in turn generate the
larger infl ows which can cater for a more competitive market
in terms of the provision of long-term investment solutions.
42
The most common types of substitute products for investment
funds according to EFAMA are structured products, closed-
ended funds and Euro Medium Term Notes that are linked to
an underlying index. Products which provide exposure to asset
management strategies that are typical for investment funds
(both active and passive strategies) and which promise fund-like
returns, often linked to equity, commodity or property indices,
and often generated through the use of derivatives without
direct investment in the underlying asset can be considered
as substitute products to investment funds.
Scenario PlanningSubstitute Products
Investors can choose between efficient solutions provided by
AMs and other industries. However, the comparability of products
across various industries will remain limited.
Despite comparable requirements, AM products do not manage
to offer the investors the same levels of product efficiency as
structured and insurance products.
AM products lag behind substitute products which are able to
offer more efficient solutions to investors without transparency
requirements and related burden.
Fair Competition
Limited comparability
Unmatched needs
Business as usual
HighLow
Investors looking for efficient solutions can make an informed
choice between funds and substitute products.
Fund product efficiency
Tran
spar
ency
Com
para
ble
Non
- co
mpa
rabl
e
Figure 17
4
43
With global sales of USD 376bn in 2010[16], structured products
pose a potential threat as substitute products to the AM
industry. The main difference between substitute products
and mutual funds is the principal protection option and
the customisation to a specific investor’s view of the market
offered by substitute products. Most of these are outcome
oriented, which give investors a certain degree of certainty
and security, and the fiscal advantage of the product increases
investor appetite. Furthermore, the quick time to market
allows producers of substitute products to react to changing
customer needs and market trends. The majority of mutual
funds are benchmark products with no downside protection
and no guaranteed outcome. In addition, the flexibility of
mutual funds is partially restricted through portfolio and
capital constraints in comparison to other substitute products.
Especially in continental Europe, where banks dominate fund
distribution and at the same time develop and offer substitute
products, the efficiency of the fund product is crucial for the
asset management industry to compete against substitutes.
We have taken account of this key driver on the horizontal
axis on which we have indicated whether the efficiency of the
fund product can be improved to be more competitive against
substitute products (see figure 17).
European mutual funds and substitute products do not have
the same information and transparency obligations to make
them comparable for the end investor. EFAMA has pointed
out to these differences in a Key Investor Information (KII)
vs. Summary of the prospectus, pre-contractual information
and regular updating. Achieving a closer comparability of the
information will allow more even competition between the
competing products. This factor is demonstrated through the
vertical axis of figure 17 on which we have indicated whether
the transparency of the information provided to the investor
will be comparable or not.
WHERE DO WE STAND?
Currently, asset managers face the challenge of matching the
efficiency of structured and other substitute products regarding
outcome and customer need orientation as well as time to
market. In addition, the differences in disclosure requirements
and fiscal advantages for funds and other investment products
adds to the challenges of asset managers in distributing
their products. These factors result in a relatively lower
competitiveness of mutual funds to other substitute products.
WHAT DO WE EXPECT IN THE LONG TERM?
A fair competition between mutual funds and substitute
products
We believe that, driven by investor demand, pressure to
differentiate from pure beta providers and the need to compete
against structured products, the asset management (especially
active management) industry will move towards more outcome
driven products. These will include absolute return, target-date,
LDI etc. Investors demand and sector competition will push the
asset management industry towards higher product efficiency
through investor centricity.
[16] Source: mtn-i
44
The demand of institutional investors will evolve from product-
driven, traditional asset class allocation models, to more
solutions-based advisory relationships with asset managers.
Institutionals will require managers to provide multi-asset
class solutions and risk management rather than single asset
class management. With the experience of two global financial
market crises over the last ten years and further ageing of the
baby boomers, investments with capital preservation and
upside potential will take centre stage with retail investors.
Within this scenario we will see the rise of aggregators which
will combine various asset management components to
provide solutions to end investors. The regulatory drive
initiated through PRIPs will be further developed by regulators
to provide comparable and transparent information as well as
a regulatory level playing field on packaged retail investment
products to allow for a sound and objective decision-making.
In addition to the regulatory level playing field and investor
driven product efficiency, the asset management industry
will also address the competitiveness and attractiveness of
mutual funds from a product manufacturer and distributor
perspective by offering innovative products which can compete
with substitute products in terms of time to market, fees, tax
and capital requirements for distributors. These forces will
provide for a fair competition between mutual funds and other
substitute products.
WHAT WILL BE THE KEY IMPLICATIONS?
Develop more solution- rather than benchmark-oriented
products
Asset managers will need to become innovative in combining
various asset classes and derivatives to deliver holistic solutions
for investors. This would require a strong customer centric
culture and flexibility in the product development strategy.
An ongoing dialogue and evaluation of customer needs
through market research and sales force feedback loop will
be crucial within such a strategy. Asset managers which cannot
develop the required skills in-house would need to partner
with financial solution providers who can deliver the required
components for the product.
Clear communication on differentiation to substitute
products
Within a competitive environment where the asset manager is
not only competing with other mutual funds for market share
but also with substitute products, combining the technical
knowledge of portfolio management and the communication
skills of a sales force will be indispensable for a successful
product placement with distributors.
Currently communication for instance on the level of investor
protection in mutual funds vs. counterparty risk in structured
products could prove advantageous. From an end investor
perspective a clear positioning as solution provider could prove
to sharpen and differentiate the image from other product
providers. For retail this could be done through clear brand
positioning in marketing and information materials provided
to the investors and within the advertising strategy.
Decrease time to market for development and deployment
of new products
In order to achieve a competitive advantage in new product
development it is necessary to set up a defined framework
that can bring new ideas to market faster than competitors.
The speed of new product development can differ substantially
among asset management companies with time to market
depending on factors such as product complexity, distribution
arrangements and organisational culture. Streamlining processes
from idea generation to distribution and ensuring these are
repeatable and reliable will allow asset managers to realise
revenues faster, increase market share and enhance brand image.
An integrated cross departmental team built up of research,
engineering, legal, marketing and sales experts would spur
innovation and ensure all obstacles of product time to market
are recognised and addressed at an early stage.
Choice of distributors where funds are complementary
products
Distributors within the asset management industry prefer to
offer complete product lines to cater to the various needs of
their investors and minimise the number of asset managers
that they have to deal with. Within such a scenario it will be
crucial for asset managers to choose distributors where the
fund complements the existing product line of the distributor.
In addition to innovative products this can be achieved
through a close relationship to the distributor allowing for
a clear understanding of the distributors’ needs, constraints
and targeted client segment. Tailored product development
for and white label offering to distributors could also enhance
the relationship and prove attractive for product placement.
IMPLICATIONS FOR THE INDUSTRY AND
REGULATORS
A first step towards a level playing field between various substitute products is set to materialise in short with the introduction of the PRIPs regulation. This will allow among others for a comparability of information and specificities of various products to the investor. However, the industry should endeavour to achieve further level playing fields in such areas as tax to ensure a fair competition between competing products to mutual funds.
45
46
The growth of social media from a leisure activity to a serious
marketing and information sharing medium may have a
potentially serious impact on the relationship between
individual investors and their financial intermediaries.
Avid social media followers are more likely to respond to
information, messages, advice and ‘tips’ received through
their online interaction than to engage a paid professional
– essentially becoming a ‘crowd’ investor, or an investor
influenced by the opinions of many others with whom they
have no personal relationship. Alternatively, they may simply
gather information to challenge their professional adviser(s),
necessitating a more informed client relationship.
The axes represent loyalty to adviser versus importance of
social media, where we attempt to chart the likely outcome
of this juxtaposition of established relationships and new
communication forms and norms (see figure 18).
Scenario Planninge-Investors
The growth of social media does not have an effect on the
decision-making of the majority of investors, and these investors
repeat the behaviour which has been traditionally seen in the
market and remain loyal towards their advisers and distributors.
Investors rely largely on the opinions of many strangers via social
media networks or business models to take their investment
decisions and are not committed to a specific financial adviser or
distributor brand.
Although these investors will access information from a variety of
areas, they will ultimately rely on their own personal judgement
for their investment decision and will not be influenced by brands
or social media.
Informed Investors
Business as usual
‘Crowd’ Investors
Independent Investors
HighLow
Advisers will be able to regain investors’ trust and the loyalty
of the investors will remain high. However, investors will also
use and leverage on social media and technological change to
collect information which will impact their choice of products and
relationship with financial advisers and distributors.
Loyalty towards financial adviser and distributor
Use
of
Soci
al M
edia
Hig
hLo
w
Figure 18
5
WHERE DO WE STAND?
Most of Generation Y who typify the growth of social and new
media have only just begun to reach the required affluence to
embark on their own investments. Also, the use of social media
and mobile applications in relation to investment decision-
making is still relatively low.
While a mass of financial information is currently available on
the internet, online brokers, bank websites and many other
sources, investors to date still remain sticky to their financial
adviser and the established relationship between the client
and the professional adviser continues.
WHAT DO WE EXPECT IN THE LONG TERM?
As Generation Y - particularly those born in the late Eighties and
onwards for whom global connectivity and information access is
taken for granted - begin to push through into a serious investment
demographic, we can expect a more informed investor.
These will be investors who will have used the web to advise
themselves of the basics of investing, including the differences
between products, financial instruments and risk/return
relationships. These investors will collect information through
social media and will leverage on it to have more informed
discussion with their financial adviser. However, we do not
expect a major shift in distribution models as there will continue
to be a cleavage between sophisticated investors and those
who rely on free advice via online sources and social media.
WHAT WILL BE THE KEY IMPLICATIONS?
Fund promoters will need to strengthen their presence within
social media
Although social media is not expected to be a ‘game changer’ it
can still be expected to form a major component of marketing
and information gathering for the investment industry,
particularly in terms of brand awareness and new business
prospects, but also for complementing existing communication
channels.
Distributors will have to become increasingly tech savvy
because this is what future clients will expect and demand.
Also, communication with Generation Y clients is likely to be
more nuanced and involved, as it will not be enough for firms
to disseminate product information. They will have to enter
into a continuous and live feedback with investors, gathering
information on product preferences and countering or
neutralising negative feedback. Social media may also assist
prospects and clients to get close to their Portfolio Managers
in order to better understand the investment philosophy and
monitor portfolio characteristics, potentially creating a cult of
‘Star Asset Managers’.
The ultimate goal for fund promoters is to have their reputation
strengthen directly by their investors.
“Social media is a good fit for us because it’s about relationship-
building. It’s one of our cornerstones. Everything we do is for
the client. If clients or prospects are having conversations about
topics, we want to be a part of that and offer our expertise or
understand the pain points.” Sheryl Larson[17], Vice President
and Online Marketing Manager at Northern Trust.
[17] Rock The Boat Marketing, Asset Managers And Social Media, Circa May 2010
47
48
Distributors will need to develop informative and interactive
tools allowing investors to compare and invest through
internet and mobile solutions, and also to exert more brand
control
Investment in a range of solutions, applications and platforms
will be necessary if the asset managers and distributors want
to control their communication and interaction with future
clients. For the more bespoke, specialised and typically higher
margin financial products and services, distributors will need
to be able to engage proactively with clients, developing
applications specifically for these products where possible
which can in turn give their clients the maximum of interaction
and performance access – and which distributors can own and
control. These applications will allow distributors to enhance
the client experience, track end-user activity, and create even
more scope for efficiency, planning and potentially greater
access to client funds. Through this increased interaction,
distributors will be better able to understand their clients’
desires regarding product development and optimisation.
However, future clients are also likely to want more control
over their investments, and distributors will be expected to
offer greater portfolio transparency.
Fund transparency will put pressure on price and margins
There will be a continued commoditisation of more
straightforward financial products, and these in turn will be
shifting inexorably to online platforms where rapid comparisons
will be made by investors based on any array of characteristics.
After product categorisation and historical performance, brand
recognition and reputation may be the only differentiating
factors.
For those product manufacturers that want to gain an edge
in what is likely to be a competitive market, sophisticated
and targeted marketing tactics will be necessary. However,
it is likely that in such a commoditised market, in many cases
price is likely to be the key factor. This can be expected to
drive down margins as market effects force a streamlining
of margins and fees. However, this is likely to represent only
one tier of the market. The more bespoke and sophisticated
products will resist commoditisation, and fund fees will not be
the differentiating factor. Instead, investment strategy, product
design and asset manager overall reputation are likely to remain
the key elements of interest to investors.
More sophisticated advice and expertise
The democratisation of social media is likely to increase the
level of investor’s financial education, or at least to make them
more aware of the available products and their characteristics
in the market. However, as the success of advisory business
models is predicated on the adviser having (a far) higher
knowledge than the client, if the increased specialisation and
sophistication of financial products continues, it will require
advisers of commensurate ability. It can be anticipated that
the knowledge gap between investors (particularly retail) and
educated, professional advisers will remain. However, this will
require increased investment in and by advisers to ensure their
personal expertise and sophistication remains high, and that
they are capable of responding to informed investors who in
turn would be more likely to remain loyal. As a consequence,
financial advisers will be required to be more qualified and
perhaps more specialised in order to engage in a constructive
and convincing discussion with their clients[18].
[18] See also PwC/CACEIS, Ideal Advice: A step-change in the industry’s relationship with the individual
investor, June 2010
49
Although enhanced communication is likely to impact on the
traditional relationship between client and adviser, it seems
likely that professional financial advice will continue to be a key
element in investment decision making. While Generation Y is
likely to be a more informed and demanding client, it should
not be forgotten that future financial advisers will also be drawn
from Generation Y, and combined with a sound education and
a universe of more sophisticated and specialised products,
professional advice will continue to command a premium.
What can be expected to change is the attraction and servicing
of new clients, and this is where a mastery of social media
and new applications is expected to be key in terms of brand
and reputation building. Also, growing innovation in new
applications for specialist products and services, combined
with an increase in more impersonal trading platforms, can be
expected to occur as features of future distribution strategies.
www.rethinkingdistribution.com
50
51
Conclusion
Rethinking
Distribution
52
ConclusionIn a future where competition is set to increase across
all accessible markets, segments and sectors, successful
distribution will depend on getting the basics right. The key
will not lie in developing exotic products which sound trendy
but rather to be tuned to the pulse of the customer and markets.
The success of the European asset management industry
in emerging markets will be dependent not only on a
comprehensive understanding of the local specificities but
also local presence, and promotion built on the fundamentals of
solid product performance. In specific local markets, partnership
with local knowledge will be crucial in overcoming regulatory
and cultural barriers. The European asset management industry
is currently at a crossroads. Should the industry allow for
distribution reciprocity, or at least an interactive dialogue with
selected emerging market regulators, when developing future
regulations? Or should the industry risk the threat of losing
the dominance of UCITS distribution in these markets in the
long term future?
Similar relationship building qualities will be in high demand
with investors. While future investors are likely to be more
challenging and skeptical of financial institutions in general,
good personal relationships will rise above these reservations
and can create a resilient client base who are more likely to
remain with a trusted adviser through a downturn. To gain
such a client base, product manufacturers will have to work
closely with distributors in order to create products optimised
for specific channels and market segments. While returns will
obviously be a major factor, strong client relationships cannot
be underestimated.
A sector with less surety is the area of pensions. While it is
certainly technically possible for the asset management industry
to create products in partnership with insurance entities that
will better satisfy the requirements of mass retirement income,
much depends on the development of government policy
in the area. However, it appears likely that the trend toward
more and more private schemes is inevitable, and these new
flows should open the market sufficiently to allow the asset
management industry to be proactive in offering solutions,
rather than being reactive.
Similarly, the competition with substitute products also has the
potential to be market changing. While a more level playing
field between substitute products and traditional investment
products may occur, a greater challenge would appear to be
achieving the increased specialisation which can deliver on
the wants and needs of a more objective oriented market.
The asset management industry will need to be willing to
employ efficiency and innovation to create products that can
exploit these opportunities.
Higher sophistication of advisers, greater transparency for the
client and increased interaction with customers will also be the
factors of success in a world where investors will rely more on
social media to discuss and decide on financial matters. Even if
institutions rely on social media for nothing more than brand
protection, they will need to become adept in its use.
Although there is no silver bullet for success, the concepts
discussed in our scenarios should equip asset managers and
fund distributors with the main ideas necessary to offer their
investors a new experience of the fund industry. This new
experience can be summarised in four main points:
52
53
INVEST IN RELATIONSHIPS
Keeping a close relationship to the distributors, investors and/or
emerging market players will allow for a better understanding
of product and service needs, preferences, constraints and
changing market trends. Combining the technical knowledge
of portfolio management and the communication skills of a
sales force will be indispensable to a successful distribution
strategy. This has been illustrated by the recent success of
some European boutiques in which marketing and sales teams
account for approximately 50% of their staff.
Invest time, especially with pension funds, insurance companies
and “informed investors” (through social media) to offer adequate
answers to daily queries but also proactively provide relevant
and timely information on market fluctuations and investment
decisions. This will allow asset management firms to build
trust and to position themselves as a privileged interlocutor
and provider.
SHARE AND COLLABORATE
While a good relationship to the distributor and the investor is
vital, asset management firms should be able to listen to and
capture client feedback. This will allow them to develop and to
deliver successful products in a timely manner. Organisations
must be based on a strong customer centric culture with
ongoing dialogue and evaluation of customer needs through
market research and sales force feedback.
Asset management firms and associations should also provide
increased education materials and training to both investors
and advisers, with a short-term emphasis placed on increasing
the capability of financial advisers.
With globalisation and rise of emerging markets it will also
be extremely important to allow for equal opportunities
between the mutual funds of these regions. This may include
cross distribution, close collaboration with the regulators of
these regions and the integration of their views within future
regulatory developments of EU fund frameworks.
The asset management industry should draw on their
relationships with distributors and investors and cultivate
ongoing feedback to discover opportunities for new products.
A bottom-up approach to product development and selection
will ensure that their funds meet the needs of future clients.
With increasing moves towards solution-based products, the
asset management industry may not always be in a position
to deliver the required product internally. In such cases the key
to success will lie in the ability to team up with other financial
solution providers to deliver bespoke products meeting the
needs of specialised investors.
ENHANCE VALUE THROUGH QUALITY
The most sophisticated and comprehensive distribution
strategy cannot be successful if the product fails to deliver:
Performance: even though price sensitivity may differ between
countries, products and investors, the key driver of demand will
be performance;
Value-for-money: a strong customer centric approach in the
product development process will maximise benefits for
the investor in the most cost-effective manner. As such, the
cost of daily NAV reporting, monthly factsheets, etc. arguably
produces little in the way of concrete benefits to the investor
of retirement products;
Safety: EU-domiciled funds, especially UCITS, enjoy a
worldwide reputation for regulatory integrity and security.
The fund industry should ensure that this integrity is
maintained, as well as building a comparable level of trust
in AIFM.53
54
Of the same series
Ideal Advice - June 2010
A step-change in the industry’s relationship with the individual investor
Within this report we examine the state of play of financial
advice within Europe and provide a set of key recommendations
which we believe are critical to enhance the overall quality
of investment advice. In our view, now is the time for our
industry to take bold and convincing steps and an active role
in achieving a business model that is both sustainable and
investor centric. Available also in Spanish.
Ideal Fund - June 2009
Reengineering the fund value proposition
This paper takes an investor-centric approach to examine the
mutual fund value proposition and outlines recommendations
for governments and the industry to promote sustainable
solutions that will serve investors. The focus is on the long-term
investment goals of European retail investors.
Idea
l Advice
A st
ep-c
hang
e in t
he in
dustry's re
lationship with the individual investor
June 2010
Ideal
Fund
Reeng
ineeri
ng th
e fun
d valu
e pro
posit
ion
June
2009
François Marion
CACEIS, Chief Executive Offi cer
+33 (0)1 57 78 0110
Arianna Arzeni
CACEIS, Senior Market Research Manager
+352 47 67 2024
www.caceis.com
Marc Saluzzi
PwC Luxembourg, Financial Services Leader
+352 49 48 48 2511
Dariush Yazdani
PwC Luxembourg, Director of Financial Services Research Unit
+352 49 48 48 2191
www.pwc.lu