With MiFID II and PRIIPs fast approaching there will be winners and losers in the asset management industry. To be a winner, you must ensure you are servicing the regulatory needs of your clients.
It’s basic economics that if you increase the cost of something it becomes less appealing. Therefore it should come as no surprise that if you change the regulatory framework, or increase the regulatory burden, that will affect the operations of the market that’s targeted by the rules. In the case of the finance industry, we expect both MiFID II and PRIIPs to have a significant effect.
Keeping things simple, an important part of what both these regulations do is require asset managers to provide key data and insights on their products to their distribution network, be that wealth managers, insurers or platforms. And from the distributor perspective, they have to deal with data from a wide range of fund managers in order to be able to sell any products. So there is instantly an incentive for them to cut the number of asset managers they will be dealing with as this reduces the regulatory complication for them.
As part of our onboarding programme, we are extensively monitoring how companies are performing against their peers on a number of parameters. Most interestingly for our asset management partners, we are able to extract some worthwhile conclusions on their interaction with the distribution network:
For any major distributor, more than 50% of their data requirements are taken up by the top 20 asset managers that they deal with.
By combining the data from multiple distributors, we can then see which asset managers have a greater footprint in the total market.
By comparing the relative position of an asset manager in our ranking, it gives a good indication of their ability to sell their funds into the market.
This may also indicate the inflection point where a fund manager is more likely to lose business as a result of the streamlining that we outlined above.
In plain English, the smaller your input into the distribution network, the more likely you are to be excluded from mandates as distributors look to simplify their regulatory and distribution challenge.
However, this is not a foregone conclusion. As we alluded to beforehand, the organisational demands of regulation are a cost for distributors. If you make the job of looking for data easy for them, you have lowered that cost. Therefore, what all asset managers should be doing is making sure that their data is available to their distribution network in the easiest way possible (we’d obviously recommend the exchange model of Silverfinch). For those winners in the distribution space, they’ll need to ensure they can provide the data to maintain their advantageous position. And for those who might have a smaller footprint, it’s even more imperative that they provide the data their clients need.
Lastly, it’s worth remembering that decisions are being made by distributors now on their product lineup for 2018 – if they have the information at this time they’re likely to keep an investment product on board. By not facilitating the exchange of the data they need for PRIIPs and MiFID II, an asset manager is effectively helping them make the decision on which investment products to cull.