Cross-Border Distribution of UCITS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2011

CHALLENGES & OPPORTUNITIES

Graph 25: Illustration of a distribution network with 4 levels

Intermediary Level 1

Example of a distribution network. In this distribution network, the sequence P, I1, I3 and I6 represents a branch of the network whereas P, I1, I3 represent nodes of the branch. The combination of nodes and branches allows the transfer agent to set up any type of distribution network and to define specific rate per level.

P

I1

Intermediary Level 2

I2

Intermediary Level 3

I3

I4

I5

I6

I7

I8

I9

I10

I11

I12

Intermediary Level 4

Institutional investor Retail investor

Investor Account

1

2

3

4

5

6

7

8

Intermediary Level 1

P

Network must reflect consolidation nodes for clearing houses such as Euroclear and Clearstream

I2

I1

Intermediary Level 2

Commissions parametrised at intermediary level

I3

Intermediary Level 3

I4

I5

I6

I7

I8

I9

I10 I11

I12

I13

Intermediary Level 4

INVESTORS

Investor Account

1

2

3

4 5

6 7

8

Source: CACEIS, 2008

The lack of standardisation in distribution agreements creates inefficiencies 3.5.2

With regard to the distribution agreements, the main constraint is their administrative and legal management (content definition, commission rates negotiation, maintenance, dissemination). Indeed, it is important to note that a well drafted distribution agreement (in terms of exactness, comprehensiveness and clarity) will not only facilitate the relation between the stakeholders but also the whole transactional process, in particular the remuneration process. As such, adapted content will be beneficial for the management company, distributors, the centralising agent, the commission calculation agent, the transfer agent and the distributor’s correspondent bank. In addition to the points usually mentioned in all types of financial agreements, the following notions should ideally be integrated into any distribution agreement: • Payment and invoicing, • Transaction and/or centralisation process, • Duties and responsibilities of the parties involved, • Agreement duration and effectiveness, • Revision modalities, termination and suspension, • Election of domicile, • And finally applicable law and competent jurisdiction.

A well drafted distribution agreement will not only facilitate the relation between the stakeholders but also the whole transactional process, in particular the remuneration process.

3.5.3

Trailer fee management has become a key issue

Difficulties resulting from trailer fee management are numerous. The following points of con- cern can be mentioned:

Holdings calculation methods Determining the basis of calculation (e.g. holdings by distributor by country) is a prerequisite before calculating trailer fees.

page 66 | Cross-border distribution of UCITS