Cross-Border Distribution of UCITS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2011

CONTEXT

1.1.2

Open and guided architecture

Open and guided architecture models allow retail investors to access a broader range of fi- nancial products.

Over the years, most distributors shifted from the integrated old model to the much-talked- about “open architecture” model, which allows clients to choose from a whole range of funds, manufactured by competing asset management groups. Private banks and fund supermarkets were the first to offer a whole range of products thanks to open architecture. In the early 2000’s, even retail banks, at first reluctant to adopt an open-architecture distribution model, started to add third-party funds to their in-house ranges. A McKinsey study published in 2006, showed that penetration of third-party products was as high as 79% for IFAs already back then, going down to 35% for private banks and 10% for retail banks. Gradually, however, private banks, retail banks and IFAs shifted toward the guided architecture model and put in place distribution agreements with a few selected asset management houses which they trust. According to a survey conducted in 2007 by PricewaterhouseCoopers on 270 private banks worldwide, nearly three quarters stated that third-party products make up over 40% of their product range 9 .

A certain number of key drivers are influencing third-party distribution and in turn affect the development of open and guided architecture models, as illustrated in the graph below.

Graph 2: Key drivers contributing to the development of the open architecture business model

Better access to information, which has enabled investors to improve their understanding and knowledge of fund products Investors increasingly looking for the best products available strong request for external funds

Regulatory developments (UCITS III, IV…) help to remove barriers

and favour cross-border distribution development

Investors

Regulators

Asset Managers

Asset managers have used UCITS III to increase the range of funds available to European investors, including funds of funds Development of new distribution strategies: third-party fund distribution/ selection, fund of funds sale, multi-managers fund sale, white-labelling

Distributors

Distributors are seeking opportunities for differentiation

Increased expertise in the selection of funds

Source: CACEIS, 2008

9 Source : PricewaterhouseCoopers, “Global Private Banking &Wealth Management Survey”, 2007

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