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Are you ready for direct distribution to end customers?

By Daniel Häfele

Distributing investment products is growing to be ever more expensive, complicated and time-consuming. Communicating directly with investors and, consequently, setting up and developing your own brand are gaining in importance. New technologies such as blockchain, fintech, regtech or robo-advice are perfect and inexpensive alternatives for smaller and middle-sized asset managers as well – provided they are ready to communicate with investors directly.

Will B2B-2B-2B distribution stay, or soon be replaced by B2C?

During the last 25 years, fund distribution has stayed the same. Nothing has been able to affect the B2B distribution system: asset managers would negotiate distribution agreements with banks and other financial intermediaries. These would then offer the products to institutional or private investors, or use them within management mandates. Before the turn of the millennium, 30% of the management fee went to the intermediaries, while today it averages 50%. To simplify distribution, a few fund platforms were set up in every country; these would provide the local market with all the funds. Asset managers were therefore able to reach a large portion of the market by using only a few contracts. However, this is becoming increasingly difficult; the number of platforms has decreased in the last few years and the winners of this consolidation process are earning princely compensations for allowing access to the investors. Today, the question “to be in or to be out” is often key. High platform fees, often linked with specific requirements in terms of quantity, age and size of the funds, more often than not make accessing the global market impossible.

Technological progress in the last couple of years – keeping in mind that the Internet is only 25 years old – is about to rapidly change this situation in the near future. During the past Fund Forums, the dominant theme was regulation, but this year, participants mainly talked about blockchain, fintech, and robo-advice. In the midst of all the euphoria some uneasiness and fear of change was also felt.

Asset managers, however, benefit from wholly new possibilities enabled by recent technologies. In cooperation with fintech companies, new electronic platforms, online advisors, as well as online wealth managers, they can focus their offer directly on private and professional investors – with little effort and at low cost.

Nevertheless, the asset management industry will have to reacquire a discipline that was forgotten in the late 1990ies: communicating, branding and direct marketing of competences and products to the end customer. It will not be long until the first large provider – Amazon or Google, perhaps – may start to compete with traditional distribution channels. This is why we advise you to begin now: with ACOLIN connect, we offer our clients the opportunity to do so right away.

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