RESHAPING RETAIL FUND DISTRIBUTION

ASSET MANAGERS TO RETHINK THEIR PRODUCT STRATEGY TOWARDS BOTH DISTRIBUTORS AND RETAIL INVESTORS

KEY MESSAGES FOR ASSET MANAGERS

With the new regulatory agenda, asset managers will need to level out their pricing policies according to the new trans- parent environment, “cleaning” their product offering from distributors’ fees. On the other side, retail clients are looking for low-cost and innovative solutions that could better meet their demands, while regulators are pursuing “fair” pricing policies in the active domain. Hence, it will become crucial for asset managers to tailor cost-effective products and link the fees applied to active products to their performance. Asset managers will also have the opportunity to leverage both the European Long Term Investment Funds (ELTIFs) and the future European Personal Pension (EPP) frameworks, currently under discussion, to propose a suitable range of pension products that could fill the current “pension gap” observed in Europe.

NEW PRICING AND DISTRIBUTION MODELS

COMPARISON BETWEEN PRE-RDR AND POST-RDR TER OF SHARE CLASSES DISTRIBUTED IN THE UK

Source: PwC Market Research Centre based on Lipper FIGURE 12

Before the RDR implementation in the UK and still today in most EU markets, investors willing to underwrite an invest- ment fund are paying a management fee composed of two components: one entitled to the asset manager for managing the fund and another earned by the distributor as the intro- ducing broker; both are embedded in the annual management charges (AMCs). The regulator seeks to avoid this “bundled” remuneration systemtomake the costs of investment products and distribution services more distinct. The main effect on the market has been asset managers “cleaning” share classes from “trailer commissions” paid to dis- tributors who introduce business to them, and the consequent decrease in the level of management fees paid by investors. As a matter of fact, the average total expense ratio (TER) paid by investors before the implementation of the RDR in the UK stood at 1.40%, decreasing to 1.01% post-RDR, with a 28% decline. Specifically, the average TER of alternatives decreased by 35%, bonds declined by 28%, equity by 31%, mixed asset funds by 26% and money market funds by 11% (see figure 12).

1,00 1,20 1,40 1,60 0,80 0,40 0,20 0,60 1,80 %

PRE-RDR

POST-RDR

0

Alternatives

MixedAssets

Equity

Bond

MoneyMarket

Source:PwCMarketResearchCentrebasedonLipper

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