Distribution continues to remain at the top of the agenda for most investment managers and depending upon where within the industry you are the term can have varying meanings, but ultimately it is about two things, the expansion of your distribution required to increase assets under management and, more personally, to ensure your end of year bonus.
Distribution expansion is costly and time consuming, requiring a level of detailed understanding of your business and the market to be able to make the right decisions. In turn the pressure to begin raising assets at the earliest opportunity is huge given the distribution expansion cost outlay. But how confident is the industry that they have all the information needed to make the right decisions regarding their distribution expansion strategy?
The industry has always suffered from the same issue – the lack of visibility and insight across their operating markets and own organisations. Over the years very little has changed. With multiple investment managers, TA’s and Distributors operating in many different geographies, and data being fed back to a single investment manager in various different formats and frequencies, it is difficult to have a clear global picture of what is really happening.
Add to this the cost to integrate multiple, disparate data feeds, the quality, consistency and availability of the data together with addressing evolving regulatory changes and you begin to understand some of these data challenges the modern investment manager faces.
Such challenges can negatively impact the business in a variety of ways.
Understanding your distribution business
The first of these is having the ability to fully understand where your fund sales are originating from. At times the level of management information is only at the nominee level and depending on your distribution strategy, these nominees may straddle many different countries. This in turn may have a detrimental effect on how a business development teams are rewarded, as a lack of detailed transparency prevents investment managers from understanding where such business originated.
Assessing new markets
The lack of a reliable, bottom up view of your markets will significantly impact the way in which an investment manager is able to evaluate new market opportunities. This lack of detailed information will make understanding the distribution landscape more difficult and will prevent investment managers from being able to carry out future trend analyses. Future trend analyses rely too heavily on incomplete data used as a base to make important distribution decisions. The inability of being able to fully understand market trends will hinder their ability to plan future market specific product launches.
With regulations constantly changing, and the need for investment managers to have a clearer idea of their target market, the need to be able to understand where their business has come from is ever greater and likely to become far more onerous on the side of the fund manager. This is increasingly the case, with FCA’s recent tightening up of the suitability position. They recently told a fund manager at a TISA MiFID II conference ‘If you are selling to a platform, then you are selling direct to the investor.’
Risk and costs are increased when the investment manager does not fully understand the distribution landscape.
So what would the industry look like if such a greater level of transparency were available? Distribution market entry strategies would be more efficient for a start, being able to reduce costs and risk when entering a new market. Investment managers could measure with accuracy the input from the sales teams, and better plan which products to enter a new market with and establish economies of scale, by having all client data in one place. This would allow ease of access, a quicker decision making process, and a single format that works globally.
The ability to carry out future trend analysis confidently through all distribution channels would give investment managers the ability to build their product strategy to meet the needs of an increasingly sophisticated audience, whilst at the same time addressing the evolving regulatory challenges around suitability and target market.
Several TA’s and platforms have attempted to achieve this, but when they have tried to leverage such data from their competitors the response has not always been favourable. What the industry needs is an agnostic business that can sit in the middle of fund managers, distributors and TA’s and be in a position to obtain the data globally from all channels and have the capability of turning this into an easy to use user Interface that can be tailored to each client’s needs.
Is greater transparency the distribution holy grail?
Calastone recognises these strategic distribution challenges that face the industry. It has become our mission to bring such transparency to the industry by extending our partner network
Working with leading global distributors we are obtaining greater levels of distribution data unobtainable to most companies. We are then packaging and tailoring this data into user interfaces which work for each client to help them manage their businesses more effectively. Whilst delivering this at company level, it is also allowing us to build up market views in key global markets, which will aid investment managers and distributors in understanding where they stand compared to the market from both a cross-border and domestic perspective.
This level of global transparency has the potential of offering the industry a game changing product that levels the global playing field and would bring untold advantages to the investment management industry.