Cerulli flags changing distribution dynamics

While banks remain dominant, their share is shrinking, along with insurers', at the hands of IFAs/online and direct sales. Managers are targeting Singapore private banks for expansion.
Cerulli flags changing distribution dynamics

Research firm Cerulli Associates has highlighted the growing diversification of fund distribution channels in Asia, urging managers to step up interaction with distributors to get a jump on rivals.

Ng Sze Yoon, Cerulli’s head of Asia research, noted that government regulators in the region had encouraged diversification of sales channels away from domestic banks.

She cited the example of Korea, where authorities launched an online funds supermarket earlier this year, as reported. Moreover, in Hong Kong, independent financial advisers (IFAs) have started to create a niche serving high-net-worth individuals and mainland Chinese investors.

The latest Cerulli data reveal that banks accounted for a shrinking 59.9% of mutual fund distribution Asia ex-Japan by the end of last year, a 3.4 point decline from 63.3% in 2011. Over the same period AUM from direct sales increased to 12.4%, from 10.9% previously (click on chart below to view global distribution dynamics).

Ng argued that a change in investment climate driven by low yields, which has seen institutional investors turning to mutual funds in greater numbers, has driven an increase in direct sale distribution.

“We are seeing more distributors in the system,” she added. “For example, fund managers coming to Singapore tend to list on iFast, an online channel, which is easier to access if the firm is new to the market place.”

However, she stressed it would take a long time before a segment other than banks started to dominate fund distribution.

Based on 2013 figures, securities companies now account for a falling 11.6% of fund distribution, followed by IFAs/online (11.4%) and insurers (4.8%).

The distribution market share of securities firms fell between 2011 and 2013 on account of markets such as China, which has seen strong asset growth but where securities firms have little traction. But even in Korea, where securities firms are powerful, there was a dip over the period at the expense of banks.

Interestingly, the share of IFAs/online increased by 3.6 points year-on-year to 11.6%, largely due to the “bao” phenomenon in China. This refers to Yu’E Bao, an e-commerce platform from Alipay, an affiliate of Alibaba. It launched a money-market fund from Tianhong Asset Management that catapulted the firm from 52nd largest asset manager in China to the largest within six months.

Also notable is that insurance companies have receded as a distribution channel on account of strict sales restrictions imposed on investment-linked products following poor performance in the wake of the global financial crisis of 2008/09.

Looking ahead, fund managers cited private banks in Singapore as the top distribution channel they were targeting for expansion over the next three years. This was based on a Cerulli survey carried out in the first quarter of this year.

In conclusion, Ng recommended that fund managers work towards differentiating their brands given that competition to find shelf space had become stiffer, with fund selectors typically limiting themselves to 1-2 products per asset class to retain focus.

She suggested fund managers should look beyond placing adverts and focus more on supporting distributors in terms of trailer fees, marketing campaigns and education. In short, managers need to increase interaction with distributors.

“Less can be more when it comes to putting funds on distributors’ shelves. It is best to start with your flagship fund rather than provide a buffet menu of choices,” said Ng.

While strong performance is key, fund selectors are also looking for consistency, strong risk management capabilities and a well-articulated investment process, she noted, adding: “Good post-sales client servicing will also go a long way to keeping your funds on shelves.”

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