The Future of Fund Distribution | Accenture

In the fast-evolving fiscal services industry, fund distribution has become one of the kernel matters. Investors aim to be closer to their funds, which constantly try to produce alpha. The objective is to generate more revenues and decrease costs. Because of this, digitize solutions and disintermediated models are nowadays key to the distribution value range. This article provides insights into how funds distribution solutions may be redesigned in the coming years. Most notably, we predict a switch from the B2B2C model to a more direct distribution model .

An extensive number of links in the value chain

The B2B2C model is the most far-flung model in Europe. It has five intermediaries between the investor and the asset coach. These include distributors, fund platforms, clearing and colony house, transfer agent and custodians. The manipulation of distributors by asset managers to sell and distribute funds creates a big empanel of potential investors. But distributors can ’ thyroxine always reach the wide spectrum of investors asset managers would like access to. Furthermore, the efficiency of distributors is sometimes questionable in esteem to digitization, local anesthetic market presence and degree of fees .
fund platforms are already deliver in the current exemplar. But they haven ’ triiodothyronine been used to their full electric potential. Platforms are a great tool for comparing and tracking by performances. however, the distributor still wants to maintain its character with the investor as mediator. This is to enable a wide agreement of and comparison between funds. unclutter and settlement houses play a historical function in the rate chain. They enable the proper and seasonably performance of transactions. Transfer agents keep track of the record by ensuring proper settlement of the transactions. They record the investors ’ shares while the custodians enable the safeguard of investor assets on both sides.

Current state of the industry

Worldwide regulated open-ended investment company assets amounted to €47.1 trillion during the first one-fourth of 2020. This represented a 28 percentage increase since 2015. The increase is the result of several factors. They include very low matter to rates, an increase in retail sector sake for diversify investment, and greater approachability to the fund market .

cosmopolitan net cash flow to all funds amounted to €617 billion in the beginning quarter of 2020. This is compared to €808 billion recorded in the one-fourth quarter of 2019. With a 11.7 percentage decrease, Europe is the second most affect continent after the US. The worldwide diggings of investment fund net assets at the end of Q1 2020 reveals the United States and Europe held the largest shares in the populace grocery store with 47.9 and 32.3 percentage, respectively. overall, five european countries ranked among the top ten largest fund domiciles in the world. They are Luxembourg ( with 8.8 percentage of worldwide investment fund assets ), Ireland ( 5.8 percentage ), Germany ( 4.6 percentage ), France ( 3.8 percentage ), and the United Kingdom ( 3 percentage ) .

Luxembourg and Ireland represent about half of the european visualize. together, they domiciliated over 13,500 cross-border funds in 2018 ( latest data available ). The cross-border funds within that year had an average number of extra registrations and reached a beggarly of 8.3. This is compared to 7.7 in 2008. It highlights an increasing matter to in cross-border distribution. Of the funds domiciliated in the two biggest european players, Germany, United Kingdom, Switzerland and France are the prevailing destinations for cross-border registrations .

Current challenges & opportunities for asset managers

The B2B2C model may appear to be quite complete. There is a clear breakdown of the roles each party plays in the distribution respect chain. But respective shortcomings are apparent. First, a bigger number of intermediaries leads to higher costs for investors. Each mediator requests a wage, which induces multiple fees layers. Second, the information change, e.g. investment company course catalog, KIID and investor information, becomes heavier over clock. And it is a major consumer of resources. In summation, several pleonastic tasks are executed across the process chain such as AML/KYC activities .
Since 2012, a ceaseless decrease of fees earned by fund managers has been observed. Two factors contribute to this situation : higher foil and the emergence of ETFs. With the implementation of MiFID II, fund managers must now amply disclose their costs and charges to clients. What was earlier perceived as a black box is now wide assailable. This allows clients to compare the different offers in the market. And it ultimately leads to harsher rival within the diligence. Alongside the regulation, the growing popularity of ETFs has weakened fund managers. Due to a passive voice investment model, an ETF requires a lower managerial tip. Combined with no burden fees, they are recognized as an enticing option to funds. Managers must convince the grocery store that the extra mission their clients incur is justified by higher performance .
The market today is largely composed of institutional investors. For model, pension funds and insurance companies. however, in the recent years, the retail marketplace has grown. Households are turning towards the capital commercialize. This is due to the ever-low interest rate on depository financial institution deposits. For novice investors, funds offer a meaning advantage : risk diversification with low ( or no ) engagement. however, the retail sector remains a widely undiscovered opportunity. This is true for most of the funds award in the diligence and specially in Europe .
retail investors by and large invest in their banks ’ in-house funds. This is because these are by and large the only ones marketed by depository financial institution advisors. The open architecture is not raw to the market. But it is not as widespread in Europe as it is elsewhere. Marketing external funds requires a steep regulative model. Yet there is a hard belief among fund professionals that loose computer architecture is in the end investor ’ mho interests .
additionally, current investor behavior is not fair driven by profit maximization, but besides by social value. Millennials are sensitive to global calefacient and local economies. They tend to direct themselves towards Socially Responsible Investments ( SRI ) that generate social/environmental value. however, it ’ s not good millennials who are showing interest towards SRI. The EU jumped on the SRI course by designing a taxonomy for sustainable activities applicable for the unharmed fiscal services diligence. The importance of market examination is growing. fund managers do not have the lavishness to marketplace a fund for which there is no demand. This would result in a lay waste to of time and das kapital .
The stream european distribution model can however be enhanced. In particular, the current regulative and crisis context are ideal for improvement. GDPR regulates companies to seek the approval of clients before personal data is transferred to external third parties. But the more intermediaries in the serve, the catchy it is to deal with GDPR. It leads to more contractual agreements, more data protection clauses and more oversight of the datum process register. On the other side, the COVID-19 crisis has led to massive redemptions, as times of crisis broadly do. This contributes to a significant reduction in safekeeping fees on the hands english and a general lack of liquidity in the fiscal markets. Of course, a high number of intermediaries in the fund distribution chain is intelligibly not an advantage in times of crisis. It leads to longer redemption times and a negative feel from investors.

Uberization of the fund distribution model

As observed, the B2B2C model faces different challenges and concerns. This is why a new D2C exemplary is gaining interest. This Direct-to-Consumer mannequin is not as widespread in continental Europe as it is in the US. The model leverages platforms, which are typically stage in the B2B2C model, to their broad potential. The exemplar allows for a high disintermediation of the value range. And it makes it possible for asset managers to distribute funds square to end investors through the cardinal platform .

The platform becomes a one-stop shop for the end investor. And it acts as a clear, all-in-one solution for the asset coach. It encompasses the clearing, settlement, transfer agent and custodians ’ roles in a digitize solution. The centralize platform will lead to a mutualization of the price of orderliness process. It besides registers management, process simplification, KYC-AML checks mutualization and simplification, standardized GDPR agreements, and other meaningful organizational advantages .
respective fiscal services players have provided existing D2C solutions to asset managers. however, a new character of actor could enter the investment company distribution market : engineering giants. As digitalize solutions enter the market, technology leaders could join the platform solutioning competition. This may be done is like manner to the final few years of the payment diligence, e.g. the surface of Apple Pay, Amazon Pay and Alipay .

Fueling the model with cutting edge technologies

The model on its own is akin to a sports car without an engine. The engine must be built around meaningful technologies. And it must focus on three main goals. First, provide the best service and the appropriate merchandise to end investor. Second, provide the most relevant data to both the investor and the asset director. And third, optimize the processes through a centralize association that brings together the whole ecosystem of actors .
Distributed daybook engineering ( DLT ) is the raw flagship of digitize assets. This technology provides platforms with a substantial decrease in the post-trade village time period. And it allows for about instantaneous payments. however, there are silent some concerns about this technology. specifically, there are questions regarding permissioned networks vs. networks without permission, interoperability, scalability, uncertain regulative frameworks, and immutability among others. It ’ sulfur true that DLT faces challenges. But it is an fabulously easy-to-adapt technology that enhances the cardinal role of platforms. And there are many divers uses of DLT technology. For exemplify, it supports fresh contracts that improve security for both sides of the contract while reducing transaction costs .
machine teach ( ML ) and AI are already at the core of many fiscal services transformations. Distribution model platforms are no exception. ML and AI enable the clear optimization of processes through time and information collection .
Data analytics and visual image : with an integrate function, platforms have become the most relevant source of information for asset managers. Analytics allow for the identification of clear investor groups, behaviors and targets .
Businesses seeking to develop a consumer-centric approach must incorporate platforms. This will enable asset mangers to collect data on clients. This can be far empowered using data analytics and visual image software. Asset managers can then identify clear investor groups and determine their behaviors. From there, they can develop marketing plans to target the most profitable segments .

Time to take a clear positioning

The platform D2C model provides many insights for the future of the fund distribution diligence. Stakeholders within the range must determine their position with regards to this fast-evolving environment. And they should pay attention to local regulators ’ restrictions. Disintermediated actors in this fresh respect chain can reinvent themselves and determine their new value proposition in an exponentially competitive market. They should optimize their business processes and identify available outsourcing solutions and room for automation, blockchain and AI ( e.g. KYC/AML processes ). Cloud transformation and data administration, along with cybersecurity, are up-to-date enablers for a deep repositioning. cardinal actors should besides explore the likely for data monetization .
With the aforesaid constraints and the current times of crisis, asset managers must make these critical moves now :

  1. Rationalize their cost structure
  2. Embrace the platform universe and exploit open architecture
  3. Rethink their market positioning
  4. Enhance the presence on unexplored sectors (e.g. geography, retail, trend, etc.)

together, these recommendations lead to a common stopping point. The time of D2C-central chopine models has emerged. The beginning players to realize their full moon potential will gain an important strategic advantage over their competitors .

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