Competition Heats Up In European Funds Market
Wednesday, December 21, 2011

Europe's intermediary distributors of investment funds and their clients can expect roll outs of new products and potentially lower fees as investment managers fight to attract and retain assets in a challenging global investment market, according to a new report.

The results of the Greenwich Associates 2011 European Intermediary Distribution study reveal that investment managers are feeling the need to revise their product offerings and, in some cases, their fee structures, in an effort to remain competitive and relevant to customers at a time when market volatility is driving fund outflows and prompting many retail investors to hold onto their cash.

The survey of 248 intermediary distributors of investment funds including private banks, fund of funds, insurance companies, independent financial advisors, and retail banks revealed that distributors expect to see increased asset flows into alternative and thematic funds. As the head of fund selection at one private bank put it: "We are still in a low-return environment so our proposal has to be interesting without creating too much optimism".

The study also found that some distributors are gearing up for a rapid pickup in exchange-traded fund (ETF) sales. Private banks have already embraced ETFs as an attractive element of wealth management solutions for their clients, and ETFs are gaining traction among other distributors as well. Retail banks in particular expect to see significant asset flows into ETFs.

"Investment managers are coming to market with new ETFs because these products align well with changes in customer preferences and demands, including a growing emphasis on costs and fees and a desire to gain specific desired exposures," explains Greenwich Associates consultant Lydia Vitalis. "Regulatory changes, such as the Retail Distribution Review (RDR) seeking to ban commission in the UK retail market, will bring about changes in the distribution landscape that will likely increase interest in ETFs further."

The results of the Greenwich Associates study suggest that ETF allocations are poised for future growth across all channels in coming years. European retail banks are gearing up for a significant increase in ETF sales, with current ETF allocations of 4.2% of third-party assets expected to jump to 12.1% by 2014.

The study further found that competition for assets and the proliferation of competitively priced passive funds could lead to dramatic reductions in fees. While many of the active funds now being sold through intermediary distribution channels carry fees in the 150 basis point range, the report notes that some investment managers are coming to market with a range of low-cost core equity products with fees as low as 40 basis points.

"We anticipate fees on core equity products to come down dramatically," says Greenwich Associates consultant Marc Haynes.