This is an exciting time for the European fund industry. Two aspects of the industry that previously have been subject to glacial change and feet dragging by many actors are now coming to the forefront.
What ties both these aspects together is the increasing opportunity to fulfil the promise of digitalisation across the entire value and distribution chains.
In a recent article, Olivier Portenseigne, Managing Director of Fundsquare, and Dariush Yazdani of PwC Luxembourg set out their views on the state of digital transformation in the industry today.
Managing Director & CCO, Fundsquare
It is now in the interest of the asset management companies to get closer to the end investors... To know their customers better and to be able to deliver products and services that are more adapted to them.
Bought, not sold
It has long been said in the industry that funds are “sold, not bought”. In the past, we would have asked the question “How are funds distributed?” with little mention of the actual investor. However, societal and technological changes mean this model will no longer be enough. Investors who have seen that the buying journey in other sectors is more seamless, or indeed understandable, now expect the same from fund actors.
Olivier Portenseigne pointed out that “today, the fund industry is unique. It is probably the only one that pushes products without really knowing what the customer needs or wants.” In today’s environment such an industry needs to change.
Flattening the distribution chain, communication between fund producers and end investors, as well as data analytics will be key to this change. Fundsquare’s Managing Director added in this context that it is now “in the interest of the asset management companies to get closer to the end investors … to know their customers better and to be able to deliver products and services that are more adapted to them.”
Digitalisation offers the solution but few asset managers have structures and systems in place that are adapted to the new environment.
New bricks in the back office
Thus, the second aspect concerns what can be called the bricks of the distribution process.
Today, distribution is complex and with time-consuming duplication throughout. For example, all intermediaries in the distribution chain are essentially keeping their own separate ledgers. Twenty years ago, it made sense to operate like this but now technological solutions, such as a blockchain, can remove the need for these.
Furthermore, over the last few years the fund industry has seen margins squeezed and regulatory requirements for more transparency. Again, digitalisation can address these issues and offer a simple, cost-effective and long-term solution.
As Olivier Portenseigne added, if fund distribution players “want to preserve their margins, they must be able to reduce their production and distribution costs. In this context, digitalisation has and essential role to play”.
Furthermore, any improvements in back and front office efficiency will also help grow Direct to Consumer, B2B and B2B2C sales.
Change is happening now
Of course, transforming the buyer journey and customer experience as well as the funds industry’s back and front offices will not happen overnight. Few actors, except for some fintechs, expect transformational change in a short timescale and most estimate around 5 to 10 years for a fully digitalised infrastructure to emerge.
Changing legacy systems and existing operating models is complicated but it is starting to happen now.
It is clear that we are only at the start of the digital transformation process. Expect change to continue.
Read the article in French on paperjam.lu