By Matthijs Aler, COO Ohpen
Mathijs Aler spoke at FundForum
Ever since the Dutch King William launched the first investment fund, mutual distribution in continental Europa has known two channels: ‘institutional’ and ‘third party’. Not surprising that investment management firms are solely focused on these channels and all employees, next to the core of the investment management and product development itself, are in service of institutional clients on the one side and banks, insurers and private wealth managers on the other. Why bother directing marketing and sales to the direct customer, when your 95% of your business is indirect and, more importantly, with ‘professionals’? Or….? Like Darwin said: the last one standing will not be the most intelligent nor the strongest but the one most adapted to change. But is the market changing and is the direct customer becoming more important? I for one don’t think so. In this blog we outline 6 valid reasons not to go direct!
Mutual funds are far too complex to be sold ‘online’ and ‘execution only’
Absolutely right! Like consumers, who still cannot arrange their own holiday and have to go to a travel agency, investors prefer paying top dollar for the service of a distributor which doubles the price of the underlying mutual fund with advice- and distribution fees. Retail clients are becoming less self-directed each year and need the advice of a professional. On top of that, the first ‘simple’ mutual fund remains to be invented and investors need to read the 200 page prospectus before being able to comprehend its contents. Why are mutual funds so damn complex?
Distribution partners will boycott you the second you launch a webshop!
We’ve seen it many times before. The minute Hilton Hotel Group offered online booking possibility, Booking.com and Expedia refused to sell any more rooms. Same with Apple; retailers are no longer selling their products since they went online. Why should the investment management be any different?
A third, direct, distribution channel will cost millions in operations!
If only ICT and business processes would have evolved over the last decade…. Then managing a direct book of tens of thousands of retail investors wouldn’t be such an operational nightmare. Sub registers, unfortunately, still require Brazilian rainforests in paper trail operations and back office teams the size of the government to manage. You’re probably right, the administrative costs will be a multiple of the management fees that you might earn. And we haven’t even talked about the call centre yet. Why even consider?
Our fund gamma is way too small to be able to serve a typical retail investor
Most retail investors are so high demanding and selective that a good brand name, a decent investment team, clear investment strategy and a broad mutual fund offering simply aren’t enough. I’ve talked to thousands of individual investors and I still have to encounter the first that will suffice with a single multi manager worldwide equities fund. No, they all insist of picking the best manager for each investment category. Why are investors that demanding?
Banks have been a long lasting and loyal partner of our firm, they’ll never betray us!
The retail distribution review (RDR) hasn’t had any true impact, really. Banks are not at all struggling in proving to investors that the service they offer on top of the mutual fund is worth every penny. And what if they decided to outsource mutual fund management in a white-label setup, what’s the worst that could happen to you, lose your brand awareness with the larger public? Never mind, the importance of brand awareness is overestimated!
We know nothing about retail-marketing, let alone creating a private investor oriented proposition
Ouch, you’ve got a point there. Managing a three billion USD hedged total return non-listed distressed debt fund is a walk in the park compared to creating a search engine advertising campaign on Google. And product managers with retail banking experience are harder to find than the aforementioned manager. Let’s drop it.
No kidding: direct customers won’t bite!
There are many misconceptions about direct distribution and I’ve tried to pinpoint the most important ones of them. The truth is: distributions strategies can co-exist easily and using modern technology and marketing strategies can ensure the investment management industry of less dependence of partners, that only remain partners as long as it goes their way. It can create a valuable new client group with steady inflows and decent margins. There’s a new generation of mutual fund investors coming along with whole different needs than their parents. Servicing them is not only satisfying and strategically important, keeping the management fees all to yourself can also be quite profitable. American investment managers such as Vanguard and Fidelity have known this since the early nineties!
Matthijs Aler spoke at FundForum International
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