RETHINKING DISTRIBUTION

Where dowe stand?

With global sales of USD 376bn in 2010 [16] , structured products pose a potential threat as substitute products to the AM industry. The main difference between substitute products and mutual funds is the principal protection option and the customisation to a specific investor’s view of the market offered by substitute products. Most of these are outcome oriented, which give investors a certain degree of certainty and security, and the fiscal advantage of the product increases investor appetite. Furthermore, the quick time to market allows producers of substitute products to react to changing customer needs and market trends. The majority of mutual funds are benchmark products with no downside protection and no guaranteed outcome. In addition, the flexibility of mutual funds is partially restricted through portfolio and capital constraints in comparison to other substitute products. Especially in continental Europe, where banks dominate fund distribution and at the same time develop and offer substitute products, the efficiency of the fund product is crucial for the asset management industry to compete against substitutes. We have taken account of this key driver on the horizontal axis on which we have indicated whether the efficiency of the fund product can be improved to bemore competitive against substitute products (see figure 17). European mutual funds and substitute products do not have the same information and transparency obligations to make them comparable for the end investor. EFAMA has pointed out to these differences in a Key Investor Information (KII) vs. Summary of the prospectus, pre-contractual information and regular updating. Achieving a closer comparability of the information will allow more even competition between the competing products. This factor is demonstrated through the vertical axis of figure 17 on which we have indicated whether the transparency of the information provided to the investor will be comparable or not.

Currently, asset managers face the challenge of matching the efficiency of structured and other substitute products regarding outcome and customer need orientation as well as time to market. In addition, the differences in disclosure requirements and fiscal advantages for funds and other investment products adds to the challenges of asset managers in distributing their products. These factors result in a relatively lower competitiveness of mutual funds to other substitute products. A fair competition between mutual funds and substitute products We believe that, driven by investor demand, pressure to differentiate frompure beta providers and the need to compete against structured products, the asset management (especially activemanagement) industry will move towards more outcome driven products. These will include absolute return, target-date, LDI etc. Investors demand and sector competition will push the asset management industry towards higher product efficiency through investor centricity. What dowe expect in the long term?

[16] Source: mtn-i

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