Asset servicers have targeted distribution as a promising area for progress. Nicholas Pratt looks at the range of products and competing providers.
The recent Funds Europe survey of third-party administrators (Funds Europe, April) revealed that a large majority of providers, especially those with an all-round asset servicing capability, have targeted “distribution support services” as a new business opportunity.
But what do these services entail? Is there any uniformity between the different providers’ offerings? And have these services been genuinely demanded by investment managers or are they opportunistic gambits from asset servicers looking to find new avenues of revenue?
“In the past few years, distribution support has become a front-and-centre concern for investment managers,” says Paul North, head of product development at BNY Mellon Asset Servicing.
The creation of Ucits funds came with an opportunity to distribute fund management products across the continent, but as the economies within Europe continue to contract, investment managers are looking further afield to Asia and Latin America – something which comes with far greater challenges in terms of distribution. “So they are asking us for help,” adds North.
The first area that BNY Mellon has addressed is support for marketing processes. “We’ve been finding that sales and marketing teams are engaging in the RFP [request for proposals] process along with the COO [chief operations officer]. Previously we would be engaged by COOs to provide transfer agency (TA) services, now this is being extended so that we are engaging with sales and marketing teams to help produce marketing materials. This includes translation into various languages and keeping them updated as content changes.
“There is a lot of focus on Kiids [key investor information documents] right now, but we expect to see the demand broaden,” says North.
Another area of distribution support service involves enhancing the services investment managers offer their distribution networks.
“The TA has traditionally interacted with a fund manager’s distributors – dictating trade flow, managing commissions and so on. But to retain those distributors in today’s global market, you have to give them a 24-7 service rather than the 9 to 5 operating hours of many regional TAs.
“We can now offer a web portal that investment managers can provide to their distributors that allows them to see their trades, reports, cash flows, product literature and enter trades. This portal operates 24-7 and we believe it offers distributors an enhanced service.”
A third area is an increasing demand on asset servicers to act as a “quasi” distribution consultant. “It is about helping clients to execute their distribution strategies. This can range from helping them assess different markets, to introducing them to the distributors in markets, Taiwan for example, through to setting up infrastructure to support the distributor,” says North.
“The services are relatively new so I think we will see an enrichment of these services – it could also expand from the institutional side to the retail side and the self-service internet-based fund platforms.”
It is a similar story for other asset servicers, such as France-based Caceis, which has branded its distribution support services under the name of Caceis Connect.
“On the reporting side, this includes providing managers with distribution information beyond the direct subscription and then managing the relationships between subscribers and distributors and ensuring all the right commissions are paid to the right counterparty,” says Laurent Majchrzak, head of distribution support at Caceis.
Other services are more focused on the operational workflow between fund managers and their distributors; managing the various payments made to different distributors every quarter as well as the registration and maintenance of distribution agreements in overseas or different domiciles, especially the emerging markets or certain countries that have been historically poor when it comes to providing the level of automated processes and qualitative information that many asset managers may expect.
Caceis is aiming its service at medium-sized asset management businesses, especially ones that are very active in their local markets but are now exploring possible opportunities that lie in emerging markets they have little experience of.
“We all feel that we have qualitative information on our books and can give that information to new clients and guide them on who the key distributors are, what the appetite for certain products and fund types may be,” says Majchrzak.
“People no longer want to test and see. They want some assurances beforehand.”
RBC Dexia Investor Services, the joint venture between Royal Bank of Canada and Belgian bank Dexia, but which will soon become entirely owned by RBC, is also providing a distribution consultancy-type service.
It will address what Oliver Portenseigne, director of product management shareholder services and distribution support, calls the conundrum of cross-border distribution. “Selling products into other jurisdictions costs money so asset managers want as much advice on the countries they want to sell into. We provide them with general information on the countries they want to distribute to – macro-economics, the distribution lines, the popular products and investor behaviour.”
RBC Dexia also provides a fund distribution platform to manage the back-office processes of distribution and to act as an interface between the various parties in the distribution chain. Portensiegne believes that asset servicers with a transfer agency capability are sitting on a goldmine of data both in terms of the countries they distribute and the funds themselves.
Consequently, RBC Dexia provides a data analytics and benchmarking service as part of its distribution support offering, comparing sales information on similar fund types, for example. It is an area that Portensiegne believes will grow in popularity as the concept of distribution support evolves.
“There is a lot of work still to be done around the data management and making it more granular,” he says. “The reason it is not as advanced is that in the case of many TAs, the data is not specifically categorised. So while they are sitting on a goldmine of important information, there is still a lot of data cleansing that needs to be done in order to create an efficient and granular service that offers true benchmarking.”
Distribution support remains a new area for many asset servicers, as Portensiegne concedes. “We all do it but in a disaggregated way and not under a conventional umbrella or package so everyone puts different services into their distribution support offering based on their capability or geography.”
Consequently, some providers will base their service on scale, especially those that combine a transfer agency service along with custody and administration and also have a big book of business to support their consultancy ambitions. Other providers, meanwhile, are looking to use distribution support as a free service and a means of demonstrating their value to existing clients.
Where they all seem to agree is on the future demand for these services.
“I think this is an area that will explode in the coming years,” says Majchrzak.
The challenge for the providers will be keeping pace with the changing distribution trends, some of which have gone full circle, as demonstrated by the emergence of local manufacturers and distributors in Asia that want to use the Ucits brand to sell funds into Europe that reflect an Asian asset management style.
©2012 funds europe