Showing posts with label Open architecture. Show all posts
Showing posts with label Open architecture. Show all posts

Monday 24 December 2007

Distribution is the key in the new age of cross border open architecture

The open architecture of distribution of funds or products has long been a staple in the US where investors have had a choice of funds to choose from among multiple best in asset class asset managers at their broker/dealer. This trend has recently catapulted with the increased proliferation of online trading platforms such as Scottrade, Charles Schwab and too many others to name. This does bring up the rather awkward question for asset managers, indeed one of survival: Given the plethora of fund choices for the investor, how do you distribute your fund products to fewer and fewer clients?

The answer lies in a new global revolution of cross border open architecture that is now driving the funds industry. In Germany for example, open architecture has taken off in a big way ever since Rainer Neske of the venerable Deutsche Bank appointed eight strategic foreign asset managers in 2003 who could sell their funds through every Deutsche Bank branch in Germany. Other European countries, notably France, Italy and Spain have arguably been laggards in implementing open architecture, but new regulation introduced since November 2007 across the European Union now makes it easier than ever to form strategic distribution partnerships with distributors across Europe with a relatively easy “single country registration” process. Goldman Sachs Asset Management whose distribution strength comes from sub-advising assets for other houses, not retail sales, has exploited this regulation (and earlier regulation) to vastly increase the depth of their product range to target European retail banks. Similar architectures of distribution are now also being introduced in many emerging markets as desperate as Kazakhstan and India.

Since investors now have a choice of upwards of 30,000 funds to choose from, churning out new fund products will not help attract new clients. Fund houses now need to focus their synergies in targeting distribution more effectively. Successful asset managers will form strong distribution partnerships with distributors serving clientele seeking solutions tailored to their needs. That old NYSE rule 405 (Diligence as to accounts) has never been more appropriate in this new age of cross border open architecture.


-Eric