Opalesque Industry Update — Europe’s intermediary distributors of investment funds — as well as their clients — can expect roll outs of new products and potentially lower fees as investment managers fight to attract and retain assets in a challenging global investment market.|
The results of the Greenwich Associates 2011 European Intermediary Distribution study reveal that investment managers are feeling the need to revise their product offerings and, in some cases, their fee structures, in an effort to remain competitive and relevant to customers at a time when market volatility is driving fund outflows and prompting many retail investors to hold onto their cash. Greenwich Associates research among 248 intermediary distributors of investment funds — including private banks, fund of funds, insurance companies, independent financial advisors, and retail banks — reveal the following trends:
• Distributors expect to see increased asset flows into alternative and thematic funds. As the head of fund selection at one private bank put it: “We are still in a low-return environment so our proposal has to be interesting without creating too much optimism.”
• Some distributors are gearing up for a rapid pickup in exchange-traded fund (ETF) sales. Private banks have already embraced ETFs as an attractive element of wealth management solutions for their clients, and ETFs are gaining traction among other distributors as well. Retail banks in particular expect to see significant asset flows into ETFs.
• Competition for assets and the proliferation of competitively priced passive funds could lead to dramatic reductions in fees in active product — especially in core equities.
Strong Demand Expected for ETFs, Alternatives and Thematic Funds
“Investment managers are coming to market with new ETFs because these products align well with changes in customer preferences and demands, including a growing emphasis on costs and fees and a desire to gain specific desired exposures,” explains Greenwich Associates consultant Lydia Vitalis. “Regulatory changes, such as the Retail Distribution Review (RDR) seeking to ban commission in the U.K. retail market, will bring about changes in the distribution landscape that will likely increase interest in ETFs further.”
In general, the results of the 2011 study suggest that the biggest increases in product demand among retail investors in the next year will occur in thematic, specialist and alternative funds, including absolute return, commodities, new-style balanced or “diversified growth” funds, and ecological/green funds. Distributors also predict significant increases in allocations to international equities, both developed and, in particular, emerging markets.
What many of these products have in common is the opportunity to deliver growth in a generally low-return environment. Of course, these products can also deliver relatively high fees and attractive margins for fund distributors and managers — a fact that could color the future demand dynamic.
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Greenwich Associates provides research-based strategy management services for financial professionals. Greenwich Associates’ studies provide benefits to the buyers and sellers of financial services in the form of benchmark information on best practices and market intelligence on overall trends. Based in Stamford, Connecticut, with additional offices in London, Toronto, Tokyo, and Singapore, the firm offers over 100 research-based consulting programs to more than 250 global financial services companies. www.greenwich.com