RETHINKING DISTRIBUTION

Distributorswill need to develop informative and interactive tools allowing investors to compare and invest through internet andmobile solutions, and also to exert more brand control Investment in a range of solutions, applications and platforms will be necessary if the asset managers and distributors want to control their communication and interaction with future clients. For the more bespoke, specialised and typically higher margin financial products and services, distributors will need to be able to engage proactively with clients, developing applications specifically for these products where possible which can in turn give their clients themaximumof interaction and performance access – and which distributors can own and control. These applications will allow distributors to enhance the client experience, track end-user activity, and create even more scope for efficiency, planning and potentially greater access to client funds. Through this increased interaction, distributors will be better able to understand their clients’ desires regarding product development and optimisation. However, future clients are also likely to want more control over their investments, and distributors will be expected to offer greater portfolio transparency. Fund transparency will put pressure on price and margins There will be a continued commoditisation of more straightforward financial products, and these in turn will be shifting inexorably to online platforms where rapid comparisons will be made by investors based on any array of characteristics. After product categorisation and historical performance, brand recognition and reputation may be the only differentiating factors.

For those product manufacturers that want to gain an edge in what is likely to be a competitive market, sophisticated and targeted marketing tactics will be necessary. However, it is likely that in such a commoditised market, in many cases price is likely to be the key factor. This can be expected to drive down margins as market effects force a streamlining of margins and fees. However, this is likely to represent only one tier of the market. The more bespoke and sophisticated products will resist commoditisation, and fund fees will not be the differentiating factor. Instead, investment strategy, product design and asset manager overall reputation are likely to remain the key elements of interest to investors. More sophisticated advice and expertise The democratisation of social media is likely to increase the level of investor’s financial education, or at least tomake them more aware of the available products and their characteristics in the market. However, as the success of advisory business models is predicated on the adviser having (a far) higher knowledge than the client, if the increased specialisation and sophistication of financial products continues, it will require advisers of commensurate ability. It can be anticipated that the knowledge gap between investors (particularly retail) and educated, professional advisers will remain. However, this will require increased investment in and by advisers to ensure their personal expertise and sophistication remains high, and that they are capable of responding to informed investors who in turn would be more likely to remain loyal. As a consequence, financial advisers will be required to be more qualified and perhaps more specialised in order to engage in a constructive and convincing discussion with their clients [18] .

[18] See also PwC/CACEIS, Ideal Advice: A step-change in the industry’s relationship with the individual investor, June 2010

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