Mutual distribution in continental Europe traditionally has known two channels: "institutional’ and ‘third party". 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. We contribute with some good reasons not to go direct for those still with their head in the sand!
Reason 1: 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. Retail clients are becoming less self-directed each year and need the advice of a professional, if only to comprehend the 200 page prospectus. Why are mutual funds so damn complex?
Reason 2: 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 refused to sell any more rooms. Why should the investment management be any different?
Reason 3: A third, direct, distribution channel will cost millions in operations!
If only ICT and business processes had 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.
Reason 4: We know nothing about retail marketing
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.
Direct customers won’t bite!
Distribution strategies can co-exist easily and using modern technology and marketing strategies can ensure the investment management industry of less dependence of partners. It can create a valuable new client group with steady inflows and decent margins. Servicing them is not only strategically important; keeping the management fees all to yourself can also be quite profitable.
Chris Zadeh, Founder and CEO, Ohpen
Speaker ALFI TA & Distribution Forum 2015
“Retail Distribution reignited by Regulation?”