Rise of the machines in global funds distribution - EY

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Oct 1, 2015 - distribution technologies and business practices has been due to the ... degree of personalization and enh
Connectivity The EY global distribution review Volume 1, issue 1

Rise of the machines: electronic platform distribution

Connectivity

Introduction to

Connectivity T

his issue of Connectivityakl`]Õjklg^ a new EY thought leadership series focused on global funds distribution. Future issues will each concentrate on a different aspect of the complex distribution equation. Connectivity won’t necessarily offer exhaustive answers or comprehensive solutions. But we will seek to raise important points of discussion, highlight key trends in the global distribution of funds, and examine where the industry is headed and how we think leading practices can be implemented.

A large portion of the wealth and asset management business model — particularly relating to operations, risk management, technology infrastructure, client reporting and portfolio management — has been addressed from a cost management perspective over the past decade. True growth will likely be achieved only through a Õje%oa\]^g[mkgfoaffaf_af\akljaZmlagf&

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| Connectivity October 2015

Further, a rich landscape of vendors providing an exhaustive range of services, from marketing and compliance to quantitative analytics and data management, has developed extensively in recent years. The crucial function that generally \]Õf]kl`]km[[]kkgj^Yadmj]g^YfqYkk]l eYfY_]e]flÕjekladdj]eYafk\akljaZmlagf& Whether from a technology standpoint, looking at the rise of electronic platforms, or from a regulatory standpoint, looking at the restructuring of remuneration models and client interaction, fund distribution is undergoing sweeping changes. For the industry, several major challenges, such as the restructuring of the compensation model, must be addressed. O]`gh]qgmÌddÕf\l`YlConnectivity looks at these many challenges, highlights the key issues afngdn]\Yf\hgaflkl`]\aj][lagf^gjÕjeklg take to succeed at distribution globally.

Executive summary

• Electronic platforms are slowly but inevitably • Part of the slowness in adapting to new becoming a vital channel in global funds distribution technologies and business distribution. Few asset managers can afford practices has been due to the entrenchment to continue using distribution models from g^gd\[geeakkagf%ZYk]\[geh]fkYlagf Z]^gj]l`]_dgZYdÕfYf[aYd[jakak$af[dm\af_ models that left little incentive to radically klYlmkimgeg\]dkZYk]\hjaeYjadqgf^Y[]% change the system. But widespread lg%^Y[]afl]je]\aYlagfgjhj]%]paklaf_eYjc]l regulatory reform of pricing models is entrenchment, as well as those that offer only now sweeping the globe, notably the limited investor options. Retail Distribution Review (RDR) in the UK and Markets in Financial Instruments • Interaction between counterparties to Directive II (MiFID II) in the European Union. exchange information and securities via 9\\alagfYddq$hja[af_eg\]dk$km[`Yk^]]% electronic platforms is nothing new in ZYk]\YhhjgY[`]k$Yj]fgoÕjedqafhdY[] ÕfYf[aYdk]jna[]k&@go]n]j$l`]_dgZYd in the industry. Thus the stage is set for wealth and asset management industry more distribution to move toward electronic `YkYj_mYZdqZ]]fl`]kdgo]klÕfYf[aYd hdYl^gjekYf\YoYq^jge^Y[]%lg%^Y[] services sector to fully leverage the power intermediation. of rapidly expanding technology and oa\]khj]Y\Y\YhlYlagfg^k[j]]f%ZYk]\ • Fund distribution platforms and their transactions. Instead, distribution in most respective rates of growth vary widely from asset management markets has focused on market to market — as does even the mere personal intermediation with little attempt at \]Õfalagfg^l`]ogj\ÉhdYl^gje&ÊO`ad]l`] true innovation. industry may be thinking globally in terms of Yf]fl]jhjak]%oa\]\akljaZmlagfkljYl]_q$Õjek must act locally to customize and leverage the platforms used in individual markets.

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• Perhaps the most advanced markets for platform distribution are the UK and the US. Oal`l`]Y\n]flg^\aj][l%lg%[gfkme]j L!]klYZdak`]\ a shared worldwide data processing platform and messaging link, along with

standardized terminology for international ÕfYf[aYdljYfkY[lagfk&Lg\Yq$em[`g^l`] _dgZYd][gfgeq\]h]f\kgfKOA>L^gj payment processing and, more recently, k][mjala]kk]lld]e]flYf\[d]Yjaf_& KaeadYjdq$af)1/*$l`]FYlagfYd 9kkg[aYlagfg^K][mjala]k]ZjmYjq*()-$l`];E=?jgmh ;`a[Y_gE]j[Yflad]=p[`Yf_]Yf\ ;`a[Y_g:gYj\g^LjY\]!Yffgmf[]\al oadd[dgk]egklg^alk^mlmj]kljY\af_halk& Open outcry futures trading has fallen to just 1% of the company’s total futures ngdme]&L`]FQK=ljY\af_Öggj$YnakmYddq stunning architectural monument of l`]`aklgjqg^F]oQgjc;alq$oaddZ]l`] dYklj]eYafaf_eYbgjljY\af_Öggjafl`] _dgZYdÕfYf[aYdkqkl]e& LYf\ F9KAk&JgZg%Y\nakgjo]Zkal]k$ often owned by independent technology companies and offering services similar lgdYj_]Y\nakgjqÕjek$Yj]klYjlaf_lg show signs of cutting out brokers and fund managers completely, as well as changing [gfkme]jkÌna]okYZgmlafn]klaf_&

L`]j]ak[d]YjdqdYl]fl\]eYf\Zq[da]flk$ whether retail investors or client-facing advisors, to use more digital channels to afl]jY[loal`ÕfYf[aYdk]jna[]kafklalmlagfk& L`]gfdqim]klagfak`gojYha\dq9kaYfZYfck oadd]phYf\l`]ajhdYl^gje^mf[lagfYdala]k to deliver more options, more services and more information to clients and keep pace oal`oa\]dqYnYadYZd]egZad]Yhhda[Ylagfk& L`]c]q[`Ydd]f_]eYqZ]gf]g^[gjhgjYl] [mdlmj]Yf\`goY__j]kkan]dql`]egZad]%Õjkl mindset is fully embraced on an enterpriseoa\]ZYkak&L`akoaddZ]Y[gfka\]jYZd] challenge, given that key stakeholders in l`]egkl]klYZdak`]\\akljaZmlagfÕjek`Yn] often built their careers working within ljY\alagfYdkYd]k[`Yff]dk& Oal`afl`]f]pl\][Y\]$l`]\akljaZmlagf of funds via the platform channel to Asian investors will likely outpace the growth of the platform channel in the UK or MK$l`]logegkl\]n]dgh]\eYjc]lkYl hj]k]fl&L`akakaffgkeYddhYjl\m]lg the rapid and growing rates of broadband market penetration, smartphone-based e-commerce and highly sophisticated investors who are becoming increasingly skeptical about the value provided by [da]fl%^Y[af_Y\nakgjk&

Change is under way in Asia In Asia, most wealth management services are delivered by the universal banks, with more than 80% of funds sold face-to-face, in formal meetings through large institutions. At the same time, buying behavior is mostly performance-focused, with investors chasing high returns and advised through personal intermediation. However, the high rate of D2C platform adoption and use of mobile technology in Asia suggests this traditional distribution model is likely to be disrupted. According to data from US-based Forrester Research, 83% of Chinese customers use mobile applications to bank online, and 73% use mobile applications to invest online.