RESHAPING RETAIL FUND DISTRIBUTION

INTRODUCTION

radicaltransformationstoclientdemographics,behavioursand investment expectations. Security, simplicity, transparency, convenience, personalisation, product performance and cost have always been important factors in building clients’ trust and loyalty. However, the Millennials’ definition of these con- cepts and their expectations of financial service providers are very different from those of the generation preceding them. These changes are forcing traditional financial industry players to re-think the way they interact with the new generations of investors – specifically, how they will earn investor’s atten- tion, loyalty and trust, how asset managers can increase brand awareness, and how to establish new products and channels for appealing distribution models. Technological developments are radically altering the way people communicate and interact with each other, and, as a consequence, the way people do business today. The distribu- tion of funds is turning into a mere function of technology, as interactions with advisors are becoming increasingly virtual- ised and computers are starting to provide the services tradi- tionally performed by financial advisors. In this respect, a new breed of technology-driven actors is disrupting the market with new business models that provide affluent retail investors with an alternative in the financial advisory domain—they are called robo-advisors or automated advisors. In the new asset management arena, the roles of the distribu- tor and the portfolio manager are overlapping and competing with technology-driven actors. In addition, in keeping with the new regulatory agenda which puts “clients first”, retail clients have taken centre stage. TECHNOLOGY

Fund distribution is at a turning point. Although the status quo of the industry has been in a state of continuous meta- morphosis for some time, the latest regulatory agenda, a profound shift in the investor base, and recent technological developments are accelerating the pace of change.

REGULATIONS

National regimes in the EU (Retail Distribution Review (RDR) in the UK and the Netherlands) and Markets in Financial Instruments Directive II (MiFID II) are reshaping the con- tours of the playing field. These regulations are focused on avoiding conflicts of interest by banning inducement-based schemes between asset managers and fund distributors, and increasing transparency. The ban on inducements for advice in the UK and the Netherlands, the first EU countries to adopt this approach, is changing the relationship between asset managers and distributors. Distributors may no longer rely on their asset managers to provide them with product- related income. Similar rules are in the process of being adopted in other EU jurisdictions, but not homogeneously, and non-EU countries are developing their own new domestic frameworks.

MILLENNIALS

Over the next decade the average investor base profile will change dramatically as the Baby Boomer generation ages, and Generation X and Generation Y assume more significant roles in the global economy. The latter group, also known as “Millennials,”represents the next bigwave of investors bringing

9