RETHINKING DISTRIBUTION

The demand of institutional investors will evolve fromproduct- driven, traditional asset class allocation models, to more solutions-based advisory relationships with asset managers. Institutionals will require managers to provide multi-asset class solutions and risk management rather than single asset class management.With the experience of two global financial market crises over the last ten years and further ageing of the baby boomers, investments with capital preservation and upside potential will take centre stage with retail investors. Within this scenario we will see the rise of aggregators which will combine various asset management components to provide solutions to end investors. The regulatory drive initiated through PRIPs will be further developed by regulators to provide comparable and transparent information as well as a regulatory level playing field on packaged retail investment products to allow for a sound and objective decision-making. In addition to the regulatory level playing field and investor driven product efficiency, the asset management industry will also address the competitiveness and attractiveness of mutual funds from a product manufacturer and distributor perspective by offering innovative products which can compete with substitute products in terms of time to market, fees, tax and capital requirements for distributors. These forces will provide for a fair competition betweenmutual funds and other substitute products.

An ongoing dialogue and evaluation of customer needs through market research and sales force feedback loop will be crucial within such a strategy. Asset managers which cannot develop the required skills in-house would need to partner with financial solution providers who can deliver the required components for the product. Clear communication on differentiation to substitute products Within a competitive environment where the asset manager is not only competing with other mutual funds for market share but also with substitute products, combining the technical knowledge of portfoliomanagement and the communication skills of a sales force will be indispensable for a successful product placement with distributors. Currently communication for instance on the level of investor protection in mutual funds vs. counterparty risk in structured products could prove advantageous. From an end investor perspective a clear positioning as solution provider could prove to sharpen and differentiate the image from other product providers. For retail this could be done through clear brand positioning in marketing and information materials provided to the investors and within the advertising strategy. In order to achieve a competitive advantage in new product development it is necessary to set up a defined framework that can bring new ideas to market faster than competitors. The speed of new product development can differ substantially among asset management companies with time to market depending on factors such as product complexity, distribution arrangements and organisational culture. Streamlining processes Decrease time to market for development and deployment of new products

What will be the key implications?

Develop more solution- rather than benchmark-oriented products Asset managers will need to become innovative in combining various asset classes and derivatives to deliver holistic solutions for investors. This would require a strong customer centric culture and flexibility in the product development strategy.

44