As fund managers consider how to evolve and enhance their distribution strategies, they are being confronted by two trends.
The first is demographic, with a growing body of evidence that the industry’s client base is getting younger. In 2021, the median age of clients for the dominant UK fund platform Hargreaves Lansdown was 46, down significantly from 2007 when it stood at 58. The US story is similar, with Merrill Lynch reporting that a fifth of its new wealth management clients last year were under 45.
The seconds concerns the use of technology. Fund managers increasingly face a situation in which they face competition from providers who provide a slick service attuned to the needs of customers well accustomed to seamless digital experiences. The vast majority of managers say that they lost customers to ‘digital-first’ competitors in 2020, rising from 78% in EMEA to 82% in North America and 93% in APAC.
The implication for managers could not be clearer: fail to overhaul distribution in a way that meets the needs of a more demanding customer base, and they risk losing them to competitors who will provide the speed, service and tooling that are increasingly the bottom line for many customers, and not just those in younger age groups.
This convergence of new technology and growing customer expectations represents a threat to managers, but can also be an opportunity for those willing to grasp the digital imperative. The evidence suggests that many are now doing so, and beginning to seek a different kind of relationship with a new generation of customers. Following decades in which they have largely been comfortable to use fund platforms as their primary engine of growth, managers are now looking towards disintermediation and the benefits of direct relationships. A BNY Mellon study found that 80% expect to increase their use of direct-to-consumer (D2C) as a distribution channel in the next three years.
Managers are not going to abandon the distribution channels that have served them well, but the growth in D2C is a notable change in approach that underlines a strategic imperative to move closer to the customer. Having become relatively anonymous entities to the many customers who invest in their products via platforms, fund managers have a desire to claw back brand recognition in a more competitive landscape: according to a survey by Accenture, almost all managers (97%) consider brand to be a point of difference, but 25% fear their own does not stand out from the crowd.
As well as becoming more familiar to their customers, a D2C approach will allow managers to serve their needs more precisely. Its growth is coming hand-in-hand with a greater emphasis on personalised services as fund managers move onto territory that has largely been occupied by wealth advisers. Accenture’s research found that three quarters of managers are considering expanding their offering beyond investment products, into areas such as financial advice. A direct relationship with the customer – allowing a fund to control both their data and user experience – directly supports such ambitions.
For funds, the future of distribution is not just a question of channels and tools, but strategy. Many are seeking not only to reach a new category of customers, but to cater to them in different ways – with personalised recommendations, added-value services and an experience closer to traditional wealth management than generic investment products. As distribution evolves, its role must be about more than efficiency of reach; in the emerging landscape of funds, it must also enable big ambitions for how they can serve the needs of clients in an environment of ever greater expectations.