key findings regulations survey - fund platform...
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Key findingsRegulations Survey
November 2015
Survey realized with and thanks to the
support of SWIFT
Fund Platform Group
Thank you for your participation
Fund Platform Group - SWIFT: Regulation Survey 2
THE FOLLOWING KEY FINDINGS ARE FROM A SURVEY OF FUND PLATFORM GROUP AND THEIR CLIENTS.
This survey is a joint research collaboration between The Fund
Platform Group and SWIFT, the leader in secured financial communication. The survey logistic was
conducted by SWIFT and SWIFT assembled the data results .
The survey was conducted over a 6 weeks period throughout September
and October 2015 among some of the most influential platform groups, fund buyers and fund sellers across Europe.
It sought the opinions of key players in the platform industry, regarding future developments, challenges and growth
outlook.
To learn more about this research, contact us:
Valérie Letellier
Market Manager – [email protected]
Richard Jones
Survey Participant
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Survey participant breakdown
Fund Platform
Distributor
Asset Manager
Other
39,74%
34,13%
15,11%
11,02%
The survey had 49 respondents
selected as senior representatives of
leading firms.
39.74% are fund platforms
respondents and distributors
accounted for 34.13%, asset manager
15.11%, Others, which included
professional organizations, fund
trading, platform technology suppliers,
service providers, and retail banks
accounted for 11.02%.
Key takeaways – Executive summary
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High impact of MIFID II regulations
MIFID II impacts to the funds industry are so important that they may modify its landscape and
possibly require it to re-invent part of itself. A year before its effective implementation and despite
the fact that it has been around since a few years most of the respondents are still assessing the
impacts or are in the process of defining their strategic axes (94,86%). This is due to some
remaining uncertainties on the final text but most probably to the fact that the consequence are so
wide that they are not totally integrated in the transversal picture across industry actors.
Rebate will continue drive growth in the market
60.56% of the respondents are stating that the rebate will remain the dominant compensation
model for the funds distribution in Europe within the next 3 years. This is slightly lower than last
year’s result that was at 68.8 %. Industry players are assessing alternative remuneration models
and are adapting to the idea that the trend is in favour of transparency on fees and remunerations.
Finally, 49.98% are still stating that banning the rebates will have no financial impact on the cost of
funds for investors. However they are now 30.02% to consider it will make cost of Funds cheaper
for investors. They were 14% only in 2014. This is another clear trend toward the recognition of the
fact that regulation might be meeting its objective to improve the cost of Funds.
Key takeaways – Executive summary
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Due diligence
After the remuneration models, due diligences and legal agreements across the fund distribution
chain are certainly amongst the key considerations derived from MIFID II and fund distribution.
77% are confirming that due diligences are a costly process impacting their profitability and 38,7%
have issues with investing in this process. The due diligence cost is identified as a key challenge to
the industry. Smaller players will not be able to cope with the costs of this requirement. They will
have to rely on partners or on mutualized solutions.
Digital transformation
Innovation and transformation are the only options for the industry players to overcome the
challenges created by MIFID II regulations. D2C and Robot Advisors are 2 innovative solutions
making some buzz in 2015.
D2C: With 57% believing in its emergence, there is no strong consensus on the future success of
D2C solutions promoted directly by AM.
Robot advisors: With close to 95% considering robot advisors will be present in the retail space
and close to 60% in the Wealth Management space, there is a strong consensus that robot-
advisors are the innovative solution for providing low-cost advise to retail investors. It is making
sense, especially considering the UK experience on retrocessions ban. In the UK, for cost reasons
, advisors and banks translated “retrocession ban” into “banning advise to retail customer ”. Robot-
advisors are a low cost solution for addressing the retail advise profitability issue.
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MIFID readiness
HOW PREPARED ARE YOU TO COMPLY WITH MIFID II REQUIREMENTS REGARDING THE DISTRIBUTION OF MUTUAL FUNDS?
0% 20% 40% 60% 80% 100%
We have already adapted our portfolio allocation models
We have already adapted our commercial & remunerationmodels
We will opt for the Independent status (vs tied) under MIFID II
We have already adapted our operational model
We Have already deployed or prepared reporting solutions oncosts and charges
We already offer low fees shares classes
We are defining our strategic axes
We are assessing the impacts
Yes No
The survey confirms that while low fees
share classes are available in
approximately 50% of the platforms,
portfolio allocations and remunerations
models have not yet integrated the use
of these share classes. Less than 25%
will opt for the status of Independent
Adviser that involves a rebate free
model. This explains the standby on
the remuneration model confirmed on
the following page
While MIFID II is seen as one of the
most challenging regulation to the
Fund Industry, 70% of players seem
not to be ready to the coming tsunami.
30% only have already adapted their
operating model.
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EXHIBIT 2
Rebate as compensation model
0%
10%
20%
30%
40%
50%
60%
70%
Insurance Unit Linked Private Banks Retail Bank Intermediating FundPlatforms
Independent FA/RetailPlatforms
Funds of funds
UK
Germany
France
Belgium
Italy
Spain
Netherlands
60.56% of the respondents agree that the rebate will remain the dominant compensation model for the funds distribution in Europe within
the next 3 years, especially in France, UK* and Germany. Moreover, There is a clear consensus (81.32%) on the fact that the AM need to
have formal agreements in place to ensure a proper cascading of responsibilities across the whole distribution value chain. Even with
intermediaries not remunerated by the AM. This confirms last year’s expectation that agreement terms between AM and Fund Buyers will
need to be reviewed. Distribution agreements will have to integrate all stakeholders in the processing chain and/ or new agreements will
have to be signed with intermediaries that were not considered until now. It concerns custodians, ICSDs, order routing platforms
Finally, 49.98% of the respondents stated that banning the rebates will have no financial impact on the cost of funds, whereas 30.02%
(against 14% in 2014) consider that banning the rebates will make it cheaper.
DO YOU THINK REBATES WILL CONTINUE TO BE THE DOMINANT COMPENSATION MODEL FOR DISTRIBUTION IN CONTINENTAL EUROPE WITHIN THE NEXT 3 YEARS?
* Life Funds and discretionary portfolio are not part of RDR
0%
10%
20%
30%
40%
50%
60%
70%
80%
Insurance Unit Linked Private Banks Retail Bank Intermediating FundPlatforms
Independent FA/RetailPlatforms
Funds of funds
UK
Germany
France
Belgium
Italy
Spain
Netherlands
Nordics
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EXHIBIT 3
MIFID towards passive funds?
While last year’s survey was believing at 75% in a moderate switch towards passive funds, this year’s survey has a more mitigated view
that is below 50% in average. The industry has matured on the pro and con’s of passive versus actives and even if the growth of
passives keeps strong, the industry has made his view on where this products are relevant or not. UK, Germany and France are the
countries where passive products are showing the fastest growth trend in average.
DO YOU EXPECT MIFID II TO DRIVE A SWITCH TOWARDS PASSIVE FUNDS?
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Insurance Unit Linked
Private Banks
Retail Bank
Un-intermediated Sales
Intermediating Fund Platforms
Independent FA/Retail Platforms
Funds of funds
Execution-only platform (D2C)
Increase Remain the same Decrease
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EXHIBIT 4
MIFID to drive a concentration on Funds Managers?
35 to 45% of respondents consider
MIFID to drive an even stronger
concentration on Funds Managers. As
expected, the trend is stronger for
retail, D2C and Private Banks whereas
it remains moderate for Funds of
Funds & Insurances. There are some
interesting alternative views on the
widening of funds choices for retail
distribution (>25% decrease of
concentration) . That maybe a
consequence of the obligation for
advisors to justify their value added
and of the transparency requirements.
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EXHIBIT 7
Due diligence on Asset Managers
COSTLY PROCESS IMPACTING OUR BUSINESS PROFITABILITY
Yes
No
76,87%
23,13%
WE ARE READY TO INVEST
Yes
No
61,43%
38,57%
Due diligence process is applicable for 67.47% of the respondent. This is clearly considered as a costly process (76.87%).
It is also to be noted that about 38.57% consider that due diligence is important but are not ready to invest in it. The due diligence cost is
identified as a key challenge for the industry. Smaller players, especially within open architecture space, will not be able to cope with the
costs of this requirement. They will have to rely on partners or on mutualized solutions.
The data are clearly getting more and more important to answer to new regulation hitting the funds industry. The value will come from the
data being managed and the way service provider will use it for the benefits of the funds and its shareholders.
There is certainly opportunity to have new solution that allow to manage complexity.
Impacts for data and services providers...
Fund Platform Group Regulation SurveyAnalysis & restitution of open questions
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Although few answers were considering the fees as being a discouragements for small retail client, respondents view that the overall
costs will remain the same but distributed in other ways or at least to be more justified. The industry players also consider that the model
will continue to be dominated by rebates, especially in the distribution channel related to financial advisors.
Remuneration of the distribution players
For product governance, the trend is clearly towards the need of a strong process to be put in place. Asset managers and distributor will
have to work closer to propose the right fund to each investor.
But so far, the lack of standard practice seems to be the issue that needs to be tackled in priority.
Product governance and its monitoring
The creation of multiple share classes is considered by respondent to be confusing, complicated and further creation could be harmful
due to a lack of clarity. The benefits of creating multiple share classes should be clearly balanced beforehand.
Creation of multiple share classes
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Digital Transformation
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
Yes, in Belgium
Yes, In Switzerland
Yes, in Netherlands
Yes, in the UK
Yes, in France
Yes, in Germany
Yes, in Italy
Yes, in Spain
No
No view at all
With only 57% of respondant believing
in its emergence, D2C distribution
solutions promoted directly by AM are
not clearly seen as the innovative
solutions that will arise. UK is the only
country where more than 50% of the
believers in D2C state that D2C will
emerge. The Netherland comes next
with 38,87% only
DO YOU BELIEVE THERE WILL BE AN EMERGENCE OF D2C DISTRIBUTION THROUGH ONLINE SOLUTIONS PROMOTED BY ASSET MANAGERS (SELLING DIRECTLY TO RETAILS)?
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
For retail customer For institutional investor for Asset Managers For Wealth Manager
Yes No
EXHIBIT
There is a strong consensus that Robot-Advisors are the innovative solution for providing low-cost advise to retail investors. Close to
96% are considering the emergence of Robot Advise in the retail space and close to 60% in the Wealth Management space.
DO YOU BELIEVE THAT THE NEW EU REGULATORY ENVIRONMENT IS OFFERING OPPORTUNITIES FOR ROBOT ADVISOR SOLUTIONS FOR THE FOLLOWING CATEGORIES OF PLAYERS?
http://fundplatformgroup.com/
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