Asset managers are reluctant to use cloud computing and exclusive fund distribution agreements, but likely to have a ‘central team’ to manage relations with fund distributors.
That’s according to a survey published this week by the consulting firm Deloitte.
Here are select highlights from its fund distribution report:
Nearly 1 in 5 investment firms said “fees/capacity of funds” were “the biggest challenges/risks in distribution facing your organization”. According to the Deloitte report:
“Fee levels were identified as the most important challenge asset managers are facing internally. This may likely reflect not only the level of investment and costs required to meet all the regulatory requirements, but also the focus that is needed to ensure the efficient operation of product manufacturing, management, servicing and distribution.”
The survey found that “business process re-engineering” (32% of respondents) and adding “more local resources in local offices” (22%) were the most common method to face the problems. (Survey-takers could select two choices.)
63% of the investment outfits “rarely” agree to exclusive fund distribution deals, while 30% of respondents “never” do and 7% “sometimes” do. Deloitte observed:
“Even if asset managers prefer the global distribution model, very few only rely on a unique distributor or are ready to provide exclusivity to one or a few distributors.”
The vast majority (71%) used an “in-house digital solution (i.e. Sharepoint)” to manage and store their distribution agreement contracts. Nearly a quarter (24%) said they used “paper files” and a handful (5%) said they used a “third party vendor solution”. Deloitte commented:
“Digitalization of legal documents is not yet effective, but is an area in which asset managers will need to invest in the future to increase their scalability and efficiency. Innovation in distribution agreement definition and storage is still to be designed, but one could imagine initiatives around blockchain or other digital solutions.”
A large number of respondents (37%) had a dedicated internal hub for distributor management and oversight. Deloitte stated:
“The survey revealed that approximately one third of asset managers rely on a centralised team to manage and oversee distributors. For another third, either the compliance, client services or business development departments handle this task.”
Just under half (49%) of respondents said “tomorrow’s model for asset managers’ document and data access” should be a “centralized industry platform with distributor specific content.” At the same time, 27% said “centralized industry platform with standardised content” and 24% plumped for a “decentralized model”.
Nearly half (48%) could not or would not say where their “core IT infrastructure for distribution content [is] hosted.” Just under a third (32%) said it was “on premise” while 9% reported using a “vendor private cloud”, 4% a public cloud and 5% “something different”. Deloitte commented:
“Of the asset managers that responded, the majority preferred to have their core IT infrastructure on premise and under their control. We may, however, expect in the coming years an evolution towards more cloud solutions as regulators are becoming more flexible on these new technologies and as the industry becomes more familiar with the efficiency and cost savings opportunities they provide.”
A quarter (25%) of respondents said that “blockchain will have the most impact” on AML/KYC compliance, with the same number (25%) pointing to register maintenance and investor order handling. Deloitte said EU and US asset managers had the same outlook.
Deloitte polled 36 asset managers “mainly from Europe and the USA in equal proportions.” The consultancy said 40% of the investment firms managed less than $50bn, 47% managed between $50bn and $250bn, and 13% managed more than $250bn.