RETHINKING DISTRIBUTION

Where dowe stand?

vary. As long as clients remain captive to their distributors, the distribution models will not radically change. However, as investor scrutiny increases and financial education improves, investors will increasingly look for best of breed products and their respective providers. Looking forward, we believe that over the next five to ten years, the Anglo-Saxon and the Continental Europeanmodels may evolve differently and we anticipate an increasing gap between them. While in Continental Europe, investors will remain captive to their banks, consumers in the Anglo-Saxon countries will welcome the end of product influence and recognise the intrinsic value of advice. Increased regulation at the point of sale will further widen the gap between the two models. On the one hand, Anglo-Saxon regulators are trying to move the industry away from selling products towards true independent advice which will result in a clearer segregation of asset management, distribution and advice. Indeed one of the key plans of the FSA’s Retail Distribution Review in the UK for instance is the Adviser Charging regime. Under this regime, advisers will no longer be allowed to receive commission on the retail investment products they recommend. This model is likely to disrupt the way advisers operate as according to JP Morgan research [13] , while 60%of consumer approve Adviser Charging regime, only 8% of the population currently pay for or claim to be willing to pay for advice on their savings and investments.

The structure of the fund industry has changed relatively little over years. According to a speech of Mario Draghi [12] , the governor of the Bank of Italy, no less than 90% of Continental European retail management activity is carried out under the vertically integratedmodel compared with less than two thirds in the US and the UK. In Continental Europe, the major AM firms remain generally fully-owned subsidiaries of large banking and insurance groups but recent events may change this situation. During the latest financial crisis a few financial groups sold their AM arms to restore their capital strength, often because these subsidiaries are generally more autonomous and easier to sell than core banking activities like retail and investment banking units. In addition, small independent boutique-style asset management firms have recently managed to rank among the top European master groups in terms of net sales. While the integrated model still remains dominant, we believe that increasing regulatory scrutiny and/or weakening of the prime relationships between clients and distributors, have the potential to fundamentally impact the distribution marketplace.

What dowe expect in the long term?

With increased regulation at the point of sale, the asset management value chain will become more complex as pure advice will be segregated from pure distribution. This evolution will allow the AM industry to implement a clear difference between the buy- and sell-sides, and independent research and advice. However, the pace of evolution may

[12] Mario Draghi,Transformation in the European Financial Industry: Opportunities and Risks, Frankfurt, 22 November 2007 [13] J.P. Morgan Asset Management, Adviser Charging: putting a price on financial advice, May 2011

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