What is driving the digitisation of fund distribution platforms?
Jean Devambez, Global Head of Products & Solutions, Asset and Fund Services at BNP Paribas Securities Services, looks at the three inextricable forces that are disrupting the evolution of platforms as we know them today.
Online platforms are digitising the fund distribution industry on a global scale. Digital transformation is gathering momentum with the help of three major disruptive forces: investor demands, technologies and new regulation.
A demand for all things digital
A growing demand for digital solutions from investors is the primary driver behind this trend. New generations of investors, including Gen X, Y investors and influenced baby boomers as well, are tech-savvy and seek control of their investments via a seamless, unified digital service at a relatively low cost. They want more engagement in the investment process and appreciate decision making tools, charting tools and education resources. Another distinct feature of these investors is their belief in the wisdom of their peers. In addition to experts and financial advisors, they value opinions and views from multiple less conventional sources such as friends, colleagues or others investors.
New technologies… to help better understand the customer
The second disruptive factor in fund distribution is, quite simply, the constant rise of new digital technologies. To cater to evolving investor needs, manufacturers and distributors adopt data-driven approaches to deliver the right product and stay competitive.
For manufacturers, predictive analytics and big data enable them to translate large volumes of historical transaction data into valuable insights that, in turn, drive product development. Typically, asset managers with predictive analytics do better than non-adopters across several customer-related sectors, such as competitor monitoring, advisor profiling and sales optimisation. Fidelity Investments with its ‘WealthScape’ data platform powering advanced analytics empowering deeper conversations with clients and potentially driving better planning outcomes is a good example of this evolution. Given the high cost of customer acquisition, US asset managers are also adopting new strategies within the robo-advisor business model, revamping them from D2C to B2B, as seen in the first quarter in the US with Blackrock or Invesco.
On the distribution side, content-rich websites, social media and mobile apps/Bots have become critical channels to reach and onboard the mass market investors. Compared with traditional distribution channels, online fund distributors not only hold a clear cost advantage, but also offer investors a more simplified and transparent investment experience.
Regulation, another game changer
Regulation is another game-changer in the fund distribution industry.
The upcoming MiFID II will introduce a series of new requirements covering key topics such as investor protection, product governance and investment advice. The inducement ban and the increased transparency of costs and charges are both topics that are expected to have the largest impact on manufacturers and distributors.
Like the RDR in the UK, the new inducement rules under MiFID II will shake the fund industry in Europe: both manufacturers and distributors must redesign their pricing models. In addition, the transparency of advisory cost will enable much greater investor scrutiny of fees, thus further encouraging the use of the low-cost solutions (ETF, funds of funds) that allow manufacturers and distributors to achieve economies of scale. Lastly, unbundled pricing may drive the multiplication of ‘no-rebate share classes’, a type of commission-free share asset class already popular in UK.
The last two years have also seen an increasing number of regulators accelerating their regulatory frameworks to catalyse fintech development. It remains a real challenge to strike a balance between developing innovation and safeguarding investor protection. As distribution continues to shift onto a virtual interface, fund manufactures and distributors need to leverage ‘next-gen’ platform strategies to remain visible, competitive and prepared for upcoming regulatory changes.
Jean Devambez will be moderating a panel on “Crossborder Distribution – Next Gen Technology Platforms” in the Business Leaders Forum at FundForum International 2016, taking place 6-8 June in Berlin.