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Research Reports » Clearstream Jan 2020

Conclusion

The survey finds that the majority of respondents define a “fund platform” to be more than a sales function. Asset managers are seeking space on the product shelf of D2C and B2B wealth management platforms that provide efficient, automated, low-cost access to a strong base of end investors. Investors are seeking access to an attractive, diversified product range with the expectation of transparency, liquidity, accessibility (i.e. “ease of understanding”) and affordability. To meet these combined objectives, the majority of survey respondents said that a fund platform must embrace online access to fund order routing, settlement, custody and asset servicing, along with effective communication of data across the distribution supply chain.

In charting direction of travel for the fund platform marketplace, the survey finds that assets supported on fund platforms are likely to increase over the coming three years, with almost one-third of respondents believing this will be a large increase. Fund platforms located in Europe (ex UK) will capture the largest share of asset growth, with those located in the Asia-Pacific region also witnessing significant expansion.

Opinion is divided regarding whether there will be a wave of consolidation in the fund platform arena or whether new entrants will enter the market. The survey tells us that both trends will co-exist, with the pace of new entry expected to slightly exceed the pace of consolidation on a global basis. However, this will be heavily contingent on location, the regulatory landscape and current cost dynamics in those markets.

When respondents were asked to evaluate the strengths and weaknesses of fund platforms they utilise, platform operators scored best for the quality of their distribution support – in managing distribution agreements, rebate calculation and collection – and for delivering value for money. Platform operators also ranked well for fund custody/asset servicing and for fund execution.

On the downside, respondents highlighted the need for better communication of data along the distribution supply chain required for sales analysis and distributor performance benchmarking. Some platform operators also need to improve the quality of investment research and portfolio analytics supported by their service.

When asked to define the most urgent priority in meeting the needs of asset management and distributor clients, respondents highlighted the same recommendation in each case – fund platforms must deliver better transmission of data across the distribution supply chain to support compliance reporting. Respondents also highlighted a need for higher levels of automation across the fund transaction lifecycle and for better onboarding procedures (for fund products, for new wealth management clients) when supporting both asset manager and distributor clients.

To deliver better service quality to the end investor, the survey presented few surprises – fund platform operators need to host a wider range of investment products (mutual funds, ETFs … ) and broader geographical coverage. Respondents also highlighted the need for better investment research and portfolio analytics tools on some fund platforms.

The survey has confirmed that regulation will be a key driver of opportunity for fund platform operators – and also a primary challenge. With the shift to fee-based advisory models (in the UK with RDR, in the EU for distribution relationships covered by MiFID II, in Australia this may be driven by the Royal Commission inquiry), distribution partners are reviewing their delivery models and fee structures. This may provide opportunities for new platform operators to break into previously captive markets dominated by banks, insurers or IFA firms.

With these market and regulatory changes, some fund platform operators are looking to rationalise their product lists and to work more closely with a smaller number of fund manufacturers. Wealth managers that operate fund platforms are typically seeking to standardise contract arrangements and due diligence procedures with product providers and this can be done most effectively with a targeted group of fund manufacturers. This enables the platform operator to build scale with specific manufacturers and to contain the administrative overhead associated with managing a large number of provider relationships. Adding a new relationship to the product list can present significant administrative costs – and may demand that another manufacturer is dropped from this list. Consequently, emergent asset managers may need to work hard, and offer something particularly attractive, to break on to the focus list of leading wealth management platforms.

In turn, with distribution and advisory relationships moving to fee-based models, this may push wealth management platform operators more towards a “product-agnostic” approach. With retrocession payments being taken out of the equation, this reinforces the value of a product mix that offers performance, diversification and simplicity to the end investor in a cost-efficient way, often through a diversified blend of ETFs, mutual funds and (for selected clients) alternative investment funds.

In supporting these relationships, the ability to support automated end-to-end transaction processing, high standards of asset safety, a strong library of product information and easy-to-use portfolio analysis tools are important to success.

Alongside this, the ability to support efficient and transparent data transmission across the distribution supply chain will be key.

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