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In search of operational excellence : myth or reality?
Fund distribution In search of operational excellence : myth or reality? CONTENTS FOREWORD THE FUND DISTRIBUTION ROAD TO OPERATIONAL EXCELLENCE FOCUS ON SELF PRESERVATION REINVENT THE BUSINESS MODEL REINFORCE RISK MANAGEMENT & CONTROLS TRANSFORM OPERATIONS & SYSTEMS 03 05 06 08 10 11 14 14 15 17 18 18 18 19 20 FUND DISTRIBUTION A COMPLEX LANDSCAPE DISTRIBUTION MODELS AND DISTRIBUTION CHANNELS: FROM MULTI JURISDICTION. MULTI-COUNTRY TO MULTI-CHANNEL VARIOUS BUSINESS MODELS IN THE FUND DISTRIBUTION VALUE CHAIN FUND DISTRIBUTION SUPPORT IS GROWING IN SIGNIFICANCE ACROSS VIEWPOINTS ON AUTOMATION FROM INDUSTRY PARTICIPANTS STILL A LONG WAY TO STANDARDIZATION COMPETITIVENESS ACROSS FUNDS MARKETS INDUSTRY INITIATIVES AND CONCLUSION: A PUSH TOWARDS EFFICIENCY CONTACTS FUND DISTRIBUTION - In search of operational excellence: myth or reality?- 3 .
automation and standardization are necessary and valuable when three conditions are met. revealed that: • Market participants who actively support fund distribution tend to look at their customers from the perspective of their own business model. which competitive advantage to build. IFDS. reinforce risk management. Despite the number of initiatives supported by the industry. operational excellence in fund distribution has not been achieved by all the players. We also explain why this approach is needed in the current environment. CACEIS Investors Services. and RBC Dexia and Société Générale Securities Services. Our research conducted in April 2009. It is our hope that this report will serve as catalyst for change. how to streamline operations. At the same time. etc. and tremendous uncertainty surrounds even the most basic questions: how to cut costs. Practice Leader 4 . Within Ineum. EFA. we would like to thank the following custodian and fund administration institutions for contributing to our current research by sharing their thoughts and expertise with us: BNP Paribas. it will not be sufﬁcient to help executives to thrive sustainably in the years to come. • The industrialization of processes offer most groups the potential for signiﬁcant cost savings. grateful thanks go to Mike Mathias and the editorial team. Finally. Many aspects of the fund distribution industry’s transformation remain unclear. Michel Kabanga KAYEMBE Investment Funds Advisory Services. • Successful business model innovation can generate signiﬁcant new growth. reshape your business model. • Although reducing cost is necessary. The views and opinions expressed herein are those of the authors and interviewees and do not necessarily represent the views and opinions of Ineum Consulting ﬁrm.FUND DISTRIBUTION - In search of operational excellence: myth or reality? . Third reinforce risk management and controls. First focus on self preservation: which non core business should be exited to refocus on core activities? Second. and transform operations: these steps have become the most important management challenges. create a new base for competition and change the cost structure. and provide examples of how it has been applied by some market participants who actively support fund distribution. our special thanks go to all the members of our Investor Services practice department. Rarely have they tried to gain a full understanding of the constraints and dynamics of their key customers’ business models.Foreword Acknowledgments First and foremost. What is needed is to do business differently. how to efﬁciently control operational risk. Focus on self preservation. Foreword In this report we present a framework that is designed to enable organizations to achieve operational excellence. reshape your business model to increase client retention.
but few service providers have demonstrated the ability to achieve operational excellence. but more can be done”. The ﬁgure below illustrates the four phases: Figure 1 The fund distribution road to operational excellence 1 Focus on Self Preservation 2 Reinvent the Business Model • What is the shape of the business portfolio? 3 Reinforce Risk Management & Controls • How to efﬁciently control operational risk on fund distribution activities? 4 Transform Operations & Systems • How to streamline operations? • Which outsourcing or off shoring strategy to adopt in order to reduce the cost base? • How to improve business performance through Scorecarding? • How to maximize beneﬁts from post merger integration? • How to cut cost and increase processes efﬁciency ? • What are the non core business in order to refocus resources on core activities? • Which long term competitive advantages to build-on • How to implement a in the post-crisis era? regulatory oversight and compliance strategy? • How to improve customer satisfaction to drive loyalty and sales effectiveness ? Source: Ineum Consulting FUND DISTRIBUTION - In search of operational excellence: myth or reality?- 5 . So.The fund distribution road to operational excellence The quest for operational excellence in fund distribution has gained momentum over the last decade. In May 2009. Setting higher standards within the distribution value chain would help. what do we mean by operational excellence in the context of fund distribution? We present four steps for moving towards operational excellence. the European Fund Asset Management Association (EFAMA) reported that “much has been achieved in the fund processing of cross border trades.
1.2.2. Funds VII.2.1. Although this traditional approach is necessary.1. Settlement & Clearing III.3. Management & Control IX. Settlement III. Corporate Actions II. Client account management based on asset allocation model and risk proﬁle V. Portfolio simulation VIII. Clients reporting VI.2. • Major players have embarked on programs to reduce costs. Order processing IV. A ﬁrm can now start analyzing where it can cut costs signiﬁcantly.The fund distribution road to operational excellence Focus on self preservation A clear sense of the organizations’ core needs will enable the non core activities to be identiﬁed. Corporate actions identiﬁcations II. Portfolio selection V. Anti-money laundering regulation IX. Position & Account Management IV. Portfolio management V. 6 .2. Tax & legal reporting IX. Securities position management IV.2. Reporting VI. But reinventing business models isn’t easy. it will not be sufﬁcient to help executives to thrive sustainably in the years to come.3. Clients VII. Deﬁne and monitor KPI Managing cost in fund distribution Fund processing costs 100% 80% 60% 40% 20% 0% Source: Ineum Consulting Order routing Cash management Errors Queries & Reconciliation Total cost Key messages • Market participants who are actively supporting fund distribution tend to look at their customers from the perspective of their own business model. Regulatory & compliance IX.3.4.3. Corporate actions notiﬁcation to client V. Accounts II. Cash position management IV.1. what keeps them up at night? Such knowledge can provide the basis for developing offerings that meet speciﬁc customer needs. Order validation I.188.8.131.52. Fund management co. Corporate actions handling II.4. Order Management I. Figure 2 Core and non core activities & managing cost in fund distribution I. Commission calculation and management VIII. Referential Data VII. • What is needed is to do business differently. Others VI. What are their key business priorities. and can help to create value for customers. Holdings management VII.4.1. Reconciliation VI. Commissions VIII.1.2. Order collection I.1.FUND DISTRIBUTION - In search of operational excellence: myth or reality? .2. Portfolio modeling V. Order routing I.3. Rarely have they tried to gain a full understanding of the constraints and dynamics of their key customers’ business models.1.Tax paying agent IX.2. reporting VI. Trailer fees calculation and management III.3. Distributors VII.
the transfer agent business must be “proﬁtable”. the business has to be proﬁtable. As such. In spite of the impact of this extensive process review. Chief Operating Offer Fund Distribution Services at Société Générale Securities Services (Fund Distribution Services) What would you consider as the major cost drivers within fund distribution? Proﬁtability from fund distribution is being squeezed from two directions: 1) cost increase due to global asset managers who are becoming more demanding. For example. it is highly effective. the transfer agent function has now moved from a simple back-ofﬁce to provide more complex and technical services including legal aspects. the cost of running a transfer agent business is compensated by other services such as custody and fund accounting. The virtuous circle of the productivity gains can be described as follows: reorganization of the processes. as well as an Optical Recognition Character platform. In the case of CACEIS. This was achieved in two years and reﬂects the most demanding standards. How proﬁtable is the Transfer Agent business? It is difﬁcult to be proﬁtable as a transfer agent due to the huge number of staff. Other initiatives include: the implementation of a document management system. Transfer Agent or Fund Accounting. distribution support and customer services. standard Transfer Agent services are combined with value-added activities as part the Prime TA® offerings. agent service offerings are not established as a standalone service but bundled with fund accounting or custody. EFA would deﬁne its organization as rationalized rather than industrialized. There is a simultaneous procedure to record the shareholders data in the register including AML and KYC reviews and in parallel a partial processing of an order. SGSS has used the on-boarding process to cope with the huge number of demands expressed by major clients. communication channels. a clear division or an industrial split such as registration or dealing is much less present than in the “classic” model. we have chosen not to be organized by country. CACEIS opened an ofﬁce in Hong-Kong from which French. Head of International Product Development at CACEIS Bank Luxembourg What would you consider as the major cost drivers within fund distribution? The ﬁrst constraint is deﬁned by the asset manager in terms of number of countries in which their funds will be distributed. and change management. However. Once it has been redirected to the Transfer Agent department. the client does not have to comply with the predetermined process. In cases where investor services is part of a global service offering. etc. our processes such as registration. Could you give us some tips on how costs are efﬁciently managed? We have combined a mass production approach and tailor made service. To sum up. Incoming orders processing is one of our core processes. dealing or cash management are less segregated. transfer FUND DISTRIBUTION - In search of operational excellence: myth or reality?- 7 . Various templates have been prepared in order to respond to each individual client request. Interview with Matthieu Pasquier. Interview with Etienne Carmon. the choice for the client has to be made between a cheap offer with low quality and a tailored made offer but with a higher price. meaning that EFA can respond to client constraints. This implies an effective mitigation of counterparty risk for the Transfer Agent. an electronic archiving system. as well as cost of change to IT. proﬁtability analysis per client is crucial. For example. This implies additional recruitment costs to hire resources with local knowledge and language skills to provide an advantage over other competitors.g. and 2) price reduction due to increase in competition. Deﬁnitely. This ﬁrst step towards reorganization of the main TA functions will be followed by a more precise review of the processes. the number of delegated activities to third parties. we have to ensure that it is processed before the cut-off time. additional complex requirements are formulated which go beyond traditional services. we have industrialized our reporting capabilities by standardizing as far as possible our contract note and cash ﬂow reports. For instance. To name a few: BCP procedures. Indeed. Our approach is to manage costs efﬁciently and to develop value-added services. Reconﬁguring systems and processes also implies change management. Head of Client Services at EFA Could you describe some of the core processes within your organization? The operational model of EFA is unique. selection of IT packages adapted to the new organisation. the nature of customer demand is a key cost driver. Secondly. some clients have to be served locally. As we are active mainly in Luxembourg with few ofﬁces abroad. Third.The fund distribution road to operational excellence Interview with Marc Vanmansart. For example. SGSS provides its added value through: reporting. Each order is allocated to a department. Within the transfer agent. the facility to handle a “daily cash settlement” process. Once the on-boarding process has been completed. For example. Elements to be considered: distribution network. Luxemburg and Irish domiciled funds are distributed. Compared to a “classic” Transfer Agent. The success of change management is a primary condition to the success of the project. The custody and fund accounting activities are much more mature in terms of customer services than the transfer agent. our organization is more client driven. How proﬁtable is the Transfer Agent business? For SGSS. Key Performance Indicators (KPI) and integrated risk management. These value-added activities will compensate output pressure on production costs and price reductions being demanded by the client. Due to this single approach. For example. e.
IFDS. Figure 3 Business model and challenges ahead Targeted Client Segments & Drivers Key driver: Expanding Marketplace & Investors Business Model Operational architecture Global footprint Centralized or Decentralized around operational hub / expertise centers Operating model based on 2 locations Operating model through one location such as Luxembourg. tax regimes.FUND DISTRIBUTION - In search of operational excellence: myth or reality? . commission and trailer fees. Hong kong Challenges Organizational Model • Client Driven • Process Driven • Mix of Client & Process Driven • Align many different economies. France. RBC Dexia. languages. EFA. CACEIS. Germany…) Source: Interviews conducted by Ineum Consulting with BNP Paribas. and determine the type of clients needed to compete effectively with other service providers. AML. 8 . customized reporting • Global fund manufacturer • Round trip business • Local asset manager (one country such as France. Ireland.The fund distribution road to operational excellence Reinvent The business model Once executives have secure access to long-term resources. business cultures • Build common elements and reuse them across the broad markets • More markets and more distributors participating with increasing interfaces • Ensure that the integration of high volume will not mean automatically more additional resources • Focus on added value services such as cash management. Société Générale Securities Services Figure 4 Fund distribution marketplace High GLOBAL DISTRIBUTION WITH A PRIMARY FOCUS ON “IN-HOUSE” FUNDS GLOBAL DISTRIBUTION WITH A PRIMARY FOCUS ON “THIRD-PARTY” FUNDS Breadth of services LIMITED FUND DISTRIBUTION CAPABILITY THIRD PARTY FUND DISTRIBUTION WITH A LIMITED SCOPE OF SERVICES Low In-House Source: Ineum Consulting Distribution Model Open Archit. the challenges are to understand the drivers of change affecting the fund distribution industry redesign the future business model.
Vice President & Head of Transfer Agency at IFDS What is your current business model? Global distribution brings with it common challenges across an extremely diverse and expanding marketplace.Global Fund Services Luxembourg Pierre Tarsi. It is a cross-functional redesign.The fund distribution road to operational excellence Interview with Thomas Bruno. Our focus must remain two-fold: 1) continue to streamline and obtain scale for core activity. Currently BPSS supports 3 different models: • For Global asset managers: operating model is supported by the fund distribution (team everywhere) • For round trip business: operating model based on 2 countries (subset of the 1st model) • For French fund manager: operating model through Luxembourg The current organization is very process oriented: this model has been proved efﬁcient and secure. It is also a way to motivate staff and to retain them. Key messages • Business model innovation requires market players to fundamentally revisit how they operate and their capabilities to create value for their customers.Product Manager What is your current business model? The business model is deﬁned by the targeted segment. 2) align the custom elements in ways that allow them to become conﬁgurations of a single model. languages and business cultures. The weaknesses of this model are: 1) the risk of loss of our knowledge and. create new base for competition and change the cost structure. It isn’t about mere restructuring. the challenge lies in the management of people. 2) the fact that the people may not have an overview of the process. and considering all the structural change. a global business and supporting in-house versus third parties products. the knowledge stays inside the ﬁrm and BPSS is able to achieve two main objectives: higher quality and risk mitigation. Global Fund Services . To that end. the risks are reaso- FUND DISTRIBUTION - In search of operational excellence: myth or reality?- 9 . Interview with BNP Paribas: Frank Roden. today’s models are a mix of standardized and customized processes with numerous interfaces between systems. depending of the type of activities. So investment in training is important. so to must the global Asset Manager and its service partners work to harmonize many demands within one framework. a fundamental change in what is sold and to whom. • Fund distribution is still. nably managed. Therefore. A lot of initiatives are organized such as breakfast meeting to share feelings and point of view. and how the value gets delivered. it is essential to have a sound risk management and control function. Head of Operations Alain Faure. The objective is to have a ﬂexible staff that can be switched from one task to another and help them to support the stress in a mature way. If staff are stable and collaborative. The key value of the business is to shape the behaviour to give the right example. • Successful business model innovation can generate signiﬁcant new growth. not redundant versions with completely unique elements. This is especially challenging as these common elements often must be simple in form and conﬁguration to be useful in many places – often resulting in a tool that satisﬁes only a portion of the need and results in cumbersome manual workarounds. Just as Europe has to work to align many different economies. Head of Client Solutions . tax regimes. for the most part. The challenge to our market is to build common elements and reuse them widely all markets. • Given the risk involved in radically redesigning the way value is delivered to the customer.
reports provided by the Customer Service & Quality Management. For this purpose. The goal of this committee is to 10 . and reputational risks for cross-border funds distribution? All legal and regulatory matters are treated seriously due to the high reputational risk of our transfer agent business. increase awareness of regulatory oversight and comply with local rules such as AML procedures in Asia. The objective is to mitigate or reduce operational risks. Interview with Marc Vanmansart. Total Quality Management meetings (TQM) with our clients and reports made by our Management. Head of Client Services at EFA How operational risks are mitigated (Managing claims and errors)? Managing claims and errors is an integral part of the Quality and Improvement process. increase in staff Capacity to trade and accept order Order will not be transmitted on time Order processing AML risk – Subscription / Redemption can’t be processed or partially Source: Ineum Consulting Interview with Etienne Carmon. EFA offered to its clients the possibility to follow-up the operational risks relating to TA and fund distribution activity. Figure 5 Managing risk 3 4 Severity 9 6 8 7 Illustrative risk 1 2 5 1 2 Probability 3 4 Nbr. analyze the main reasons for dissatisfaction. 1 2 3 4 5 Major Risks identiﬁed Capacity to absorb additional volume (new business) IT risk : interface with distributors Update of static database Capacity to collect prices (NAV) Missing shareholders data Criticality High High High High High Impact Execution delay. At the same time. a dedicated committee has been created. These scoreboards are made with a predetermined frequency and a series of qualitative and quantitative indicators.The fund distribution road to operational excellence Reinforce risk management & controls In an uncertain world. Head of International Product Development at CACEIS Bank Luxembourg What is your perception with regard to investor protection. This workshop has to manage the global and recurrent issues affecting the quality of the service provided by EFA Registre. we perform in Luxembourg the validation and controls of AML / KYC procedures although preliminary works are executed locally in countries such as in Hong Kong. • Assessment of the relevance and the efﬁciency of ﬂows and procedures: this assessment is based on the failures quoted above. technical hitches. This is a crucial component to strengthen the level of control. to identify the sources of quality failures and to take the relevant measures. The capabilities of this committee are the following: • Assessment and follow-up of the quality level: the analysis of the data are made upon various sources such as quality indicators. with scoreboards. For example within CACEIS.FUND DISTRIBUTION - In search of operational excellence: myth or reality? . • Initiation of actions or projects in order to improve procedures or systems or any structural component of the offer provided by EFA Registre. risk management will be viewed not as a constraint but as a new way of thinking about productivity. ﬁnancial loss.
and how to improve business performance.Pending AML control Order Acknowledge or reject Order Processing Order conﬁrmation : contract note or MT515 or XML message Maintain registrar TRANSFERT AGENT TRANSFER AGENT Reporting Commision and trailer fees payment Trailer fees calculation reconciliation cash & security settlement System set up Negociation distribution agrement FUND ACCOUNTING Cash and security settlement CUSTODY NAV calculation Source: Ineum Consulting Processes where a manual intervention is required FUND DISTRIBUTION - In search of operational excellence: myth or reality?- 11 .conﬁrmed .Rejected .cancelled .The fund distribution road to operational excellence Transform operating & systems The next step is to determine how to streamline operations. Many of the more traditional tools of process improvement are entirely appropriate. For example. Lean Management or Six Sigma methodology can be applied to the unique requirement of delivering operational excellence in three ways: Figure 6 Automation is still a myth in fund distribution INVESTOR Funds selection Order Placement Distributors Order Placement Order Routing Performance Measurement & Risk analytics Portefolio construction FUND MANAGER Cash Management Order receipt Status : . outsourcing or offshoring strategy to adopt.
handle multiple reconciliations. I. For example. In terms of communication channels. The ﬁrst option usually brings more constraints in terms of interfaces. performance and to be produced in different languages and formats Source: Ineum Consulting Interview with Olivier Portenseigne. Connectivity team has been set up in order to ﬁnd “win win” solutions with the client i. The main objective is to reduce the maintenance and development costs. Head of Shareholder Services at RBC Dexia How to streamline operations? IT industrialization: industrialization begins with the implementation of a common platform for all our entities. … • CONSOLIDATE INFORMATION • Centralise shareholder register and related fund positions • TRAILER FEE CALCULATION • Calculation of trailer fees based on shareholders and distributor positions using different methods (daily average or month-end holdings).e. In addition a desk dedicated to secure STP ﬂows within Operational teams has been deployed. • TAX HANDLING • Calculation of national tax regimes (such as Irish tax. we tend to retain staff for the long term. Head of Client Solutions – Global Fund Services Luxembourg Pierre Tarsi. support high level of distribution hierarchy. Interview with BNP Paribas: 12 . STP solutions increase the volume of orders processed. This also means that nearly any type of requirement can be implemented regardless of the country of distribution.FUND DISTRIBUTION - In search of operational excellence: myth or reality? . the IT team (IT is responsible of the monitoring of the system) and the operational team. Frank Roden. German Tax.e. The solution proposed depends on the size and the platform used by a distributor. In terms of organization. Process efﬁciency is measured using Lean Management or Six Sigma methodology. forecast report. NAV conﬁrmation. If the problem is corrected at the beginning of the process. Global Fund Services – Product Manager One of the most important challenges of operations is to deliver efﬁcient processes. Several solutions are proposed to capture the order and to standardize and automate the ﬂow. This is a unique opportunity to bring to the same table people from production as well as business analysts. …. we have various initiatives aiming at standardizing all incoming messages in terms of content and format. producing tax reporting for shareholders • REPORTING • Various reports: contract note.The fund distribution road to operational excellence Key challenges • GLOBAL ASSET MANAGERS HAVE A HUGE NUMBER OF DISTRIBUTORS • Deﬁne a unique point of access for distributors: access to numerous TAs via an “aggregator” for consolidating and routing order. The aim of this STP Desk is to anticipate or/and solve operational problems. It is also a way to identify non value added activities. One additional constraint is the type of operating model implemented by the client. production of the reports and transmission to distributors. …). whether transfer agent service offering is delivered as an unbundled service or integrated with Fund Accounting and Custody. This is reﬂected in the quality of service delivered to our clients and the level of knowledge gained by our employees. We are also promoting our employees by rotating candidates from production site to new position such as business analyst. Thus the time to market for all additional developments is minimized. the quality of the process is improved resulting in increased efﬁciency. increase the STP rate and decrease the fees per transaction. Head of Operations Alain Faure. the SWIFT solution can be used by a distributor processing large volumes and capable of paying for connectivity to the SWIFT network. RBC Dexia has set up a “TA Academy” that delivers training courses on various topics such as internal processes. European Savings Directive. we are in favour of using SWIFT messages or web access to increase the automation rate. Additionally. BPSS promotes STP solutions for fund promoters and distributors. This service addresses the communication between the client. statement. RBC Dexia has selected the option to develop an inhouse system.
Thanks to Lean Six Sigma methodology. • Reconﬁguring operations and systems also imply organizational change to tackle the complexity of the fund distribution landscape. Indicators include employee productivity per function such as dealing. Key messages • Industrializing processes offer most groups the potential for signiﬁcant cost savings. The solution is a combination of an STP solution and improved processes using Lean Six Sigma. accelerate settlement. Europe. This knowledge enable than to quickly correct any error and thereby to avoid operational issues. This is the main objective. • Reduction of complexity through streamlined of operations: companies competing on industrialization across countries will share platforms across different markets: US.The fund distribution road to operational excellence The other challenge is to ensure that the integration of high volumes does not mean automatically additional staff. The philosophy is “kill the risk”. etc. • Differentiation of value chain activities: 1) as either core or non core. implement effective controls. 2) and as either locally (such local transfer agent) or sharable within the group (such as global transfer agent) • Managing claims and errors: this requires that claims and errors are segmented by amount and process complexity. BPSS considers its staff as a real asset participating to the growth of the ﬁrm. Companies that industrialize their processes can compete on efﬁciency and quality by pulling these elements: • Measurement and benchmarking of key operational performance indicators along the fund distribution value chain. Mitigate the operational risk limits the loss and increase the level of quality. BPSS wants a ﬂexible work force to address their client needs and to provide timely responses to client requests. A “well educated” work force is key to deliver efﬁcient process. FUND DISTRIBUTION - In search of operational excellence: myth or reality?- 13 . the objective is to meet client requirements. cash management. people can participate in continuous improvement through workshops. Asia. improve the efﬁciency but also to develop new services. etc. Improved staff involvement is motivational. and in fact new ways of doing our jobs! The culture of the company has changed. The margin on the transactions is so small that any risk should be erased. new solutions. The staff should be trained to develop and improve the level of knowledge of the transfer agent environment and the possible impact of each action on the operations. In the future. order processing. register maintenance.
FUND DISTRIBUTION - In search of operational excellence: myth or reality? . Ineum Consulting has conducted a survey in April 2009 based on a ﬁltered sample of 25 leading service providers active in fund distribution with total assets of EUR 8. especially when the domicile of the fund differs from the country of distribution. The research revealed that the fund distribution players could be clustered into 3 groups: fund distribution support including fund distribution platform. multi-country to multi-channel Key attributes in fund distribution • Simplicity in fund distribution is not a “panacea”.Fund distribution a complex landscape The trend towards open architecture has greatly increased the complexity of the distribution chain particularly for those companies that support the fund manufacturers.298 Bio. on-line fund supermarket and routing & settlement platform. Executing and settling orders will increase the complexity. • Complexity increases when clients subscribe to third party funds. Transactions tend to be processed efﬁciently when subscription orders are placed by investors purchasing fund shares from manager and fund distributor who belong to the same group. Figure 7 The complexity of fund distribution Source: Ineum Consulting 14 . Distribution models and distribution channels: from multi jurisdiction.
Figure 8 Key ﬁgures from our research Service Provider Fund Distribution Support Online Fund Supermarket Routing and / or Settlement Platform Total Source: Ineum Consulting Number of Service Providers 14 6 5 25 Number of Funds 54.097 365 4. The primary attribute of a fund supermarket is simplicity. • Routing and / or settlement platform manage the biggest portion of the assets that are currently distributed. • On-line fund supermarket has captured EUR 365 Million which represents the smallest portion of the fund distribution market share. Out of which: 54. • On-line fund supermarket platform have been in operations in United Kingdom and United States for many years and recently to emerge in France and Germany.836 8.973 funds are allocated via “fund distribution support” and their dedicated platforms. Italy / Spain and United Kingdom as revealed in our research. Cofunds.097 Billion.836 Billion.Fund distribution a complex landscape Various business models in the fund distribution value chain The fund distribution marketplace • “Funds distribution support” offers support services to fund promoter and fund distributor.000 53.273 Assets under Management (Bio EUR) 3. • Routing and / or settlement platform usually acts as a central hub between the custodian banks who are responsible for the maintenance of the cash accounts and transfer agents who maintain the shareholder register.973 6.000 funds are distributed on a worldwide basis.300 114. with a total volume of EUR 4. trailer fees calculation and payment. the “fund distribution support” and their dedicated platforms are the most appealing structure managing EUR 3.298 • In terms of assets size. The scope of their services range from negotiation of distribution agreements. Market players and their respective operating centres • Fund administrators and (mainly) transfer agents are helping fund manufacturers to extend their channels of distribution from France. order capture and centralization. till reporting delivery. Key ﬁndings from our research • More than 114. Luxembourg.000 funds via on-line fund supermarket technology and the remaining 53.300 funds via routing and / or settlement platform. Fundnetwork. Hargreaves Lansdown and Skandia / Selestia share 80% of the on-line fund supermarket in United Kingdom. 6. FUND DISTRIBUTION - In search of operational excellence: myth or reality?- 15 . • On-line fund supermarket provides access to a wide range of mutual funds from different fund manufacturer.
Those platforms operate from different locations and mainly in countries that have strong expertise in cross-border fund distribution such as Luxembourg.Fund distribution a complex landscape Figure 9 Fund distribution players and main operating center Fund Distribution Support All Funds Bank (AFB) Attra Axeltis Fund Channel Fund Distribution Support Fund Distribution Services Fund Distribution Services Prime TA® Source: Ineum Consulting Group Intesa Sanpaolo / Santander DZ Bank Natixis Crédit Agricole BNP Paribas RBC Dexia Société Générale CACEIS Main Operating Center ES / IT LU FR / UK FR FR / LU LU LU LU / HK • Some of the most popular order routing and / or settlement platforms available on the market include FundSettle. Monte Titoli and Vestima. “fund distribution support” and their dedicated platforms appear to interact with all the players in the distribution value chain. A closer look at the interactions allows us to identify different operating models which underpin complexity and inefﬁciency. Infomediary. 16 .FUND DISTRIBUTION - In search of operational excellence: myth or reality? . Figure 10 On-line fund supermarket parent companies and main operating center On-line Fund Supermarket Cofunds Cortal Consors Fundquest FundsNetwork Hargreaves Lansdown Metzler fund Xchange Skandia / Selestia Source: Ineum Consulting Group IFDS / Threadneedle / Jupiter / Prudential… BNP Paribas BNP Paribas Fidelity Hargreaves Lansdown Metzler Old Mutual Group Main Operating Center UK FR FR/US UK UK DE UK Key ﬁndings from our research: market players in the distribution value chain • At ﬁrst glance.
Contacts with custodian banks are established to collect the position statements. All Fund Bank (AFB). capturing in different formats to Transfer Agents until the settlement of cash and securities. “fund distribution support” and their dedicated platforms appear to interact with all the players in the distribution value chain. • Unlike “fund distribution support” with their dedicated platforms. A closer look at the interactions allows us to identify different operating models which underpin complexity and inefﬁciency. • Among the operating models encountered on the market. Prime TA® or Fund Channel provide interim services such as “service bureau” to fund manufacturers and distributors to solve the spaghetti junction of fees arrangement. on-line fund supermarkets as well as routing and / or settlement platforms have relatively low interaction with fund manufacturers. distribution agreements. service provider such as Axeltis. FUND DISTRIBUTION - In search of operational excellence: myth or reality?- 17 .Fund distribution a complex landscape Fund distribution a complex landscape Figure 11 Routing and / or settlement platform parent companies and main operating centre Platform FundSettle Infomediary Monte Titoli Vestima Source: Ineum Consulting Routing Platform v v v v Settlement Platform v v v Group Euroclear Brown Brothers Harriman London Stock Exchange Group Clearstream Main Operating Center BE/LU LU / UK / US IT LU Fund distribution support is growing in signiﬁcance across the distribution value chain Figure 12 Fund distribution value chain Source: Ineum Consulting Key ﬁndings from our research: market players in the distribution value chain • At ﬁrst glance.
the Singapore ofﬁce is now being used as fund distribution base and Hong Kong will be next.e. It is a leader in fund distribution and able to bypass the constraints of the local CSD and distributes their funds worldwide. Accepting the necessity of trade-offs to cope with innovation.FUND DISTRIBUTION - In search of operational excellence: myth or reality? . Therefore. the process involves the settlement of subscription or redemption through Euroclear. On the other hand. Still a long way to standardization Several market players have maintained that operational excellence remain a challenge to the fund distribution industry. I. remains in the 40 – 60% range for most Funds and Distributors. it is not viable to open new ofﬁces in multiple global fund distribution locations. comments BNP Paribas The selection of the world location depends on where the opportunities are aligned with BPSS strategy. Luxembourg and Ireland have developed different capabilities while responding to different requirements. “booking” and conﬁrmation of the actual trade instruction. as measured by STP rates. France is a major place for fund distribution using the most secure networks but with more constraints. and commission. It is an attractive offshore location for US and UK funds. the French market has the advantage of secure settlement. most published statistics on automation are solely focused on the automation of order ﬂow. Luxembourg and Ireland still remain the most attractive fund centres. French managers tend to sell French funds outside France. Two important points should be noted when discussing a “numeric measure” of our industry’s success with STP. • Second. comments IFDS Standardization or automation. Two examples would be “side pockets” and “gating”. Both places must work in harmony to retain that position in the European fund distribution industry. • Luxembourg is a valuable domicile for cross-border fund products due to its attractive regulatory regime. and is now well-known for its expertise in the alternative world. The culture and the multilingual environment reinforce the attractiveness of Luxembourg. applying the delivery versus payment rules (DVP). comments Société Générale The French fund distribution structure differs from that of Luxembourg. comments RBC Dexia Competitiveness across funds markets Rather than being considered as competitors. However. reconciliation. For Société Générale.Viewpoints on automation from industry participants According to industry practitioners. Luxembourg appears to ﬁt their requirements. In the distribution value chain. Distributing investment funds in as many markets as possible remains a key requirement from fund managers.e. operational excellence reﬂects the capability of the industry to embrace full end-to-end straightthrough processing (STP). What still remains to be measured and discussed are other elements of the trade life cycle such as settlement. In the French model. The impact of non standardization implies ﬂexibility and frequent organizational changes. Korea and India have not satisﬁed the criteria for new distribution ofﬁces. receipt. i. the transmission. BPSS believes it is clear that Asia has strong potential for development especially as a large part of the fund distributed comes from Luxembourg platform. or the paying agent’s network.from fund registration to transaction processing cycle. reports BNP Paribas Ireland should not be regarded as a competitor to Luxembourg. or local partners. The market’s response to these ‘environmental’ developments will hinder higher STP rates. Luxembourg on the other hands retains the top spot with respect to the number of distribution agreements signed per years. 50% of the transactions processed worldwide still required manual intervention. It prefers to rely on the group. 18 .
Figure 13 Initiative Fund Processing Passport (FPP) Sponsor EFAMA Released date / Enter into force 2005 Objective FPP is a set of key “operational” information that fund promoters should provide on their investment funds in order to facilitate their trading. Distributor.com ISSA Working Group Fund Managers. SWIFT’s ISO 20022 Funds solution enables greater levels of automation and risk reduction in replacement of the ISO 15022 messages The working group proposes practical ways of gradually reducing barriers to operational efﬁciency in pan European cross-border funds processing. Useful links for additional information www. or speciﬁc initiatives led on a regional level such as the Asian Fund Automation Consortium. Several ongoing initiatives should normally improve the cross-border processing of funds’ orders. Despite the number of initiatives supported by the industry.org Asian Fund Automation Consortium (AFAC) 2006 AFAC Regional Contacts Target 2 Securities (T2S) The European Central Bank 2013 www.ecb. operational excellence in fund distribution has not been achieved by all the players. Some of the developments supported by the industry include: Fund Processing Passport. Central Depositary.efama. Custodian. taking advantage of different technological platforms already available promotes automation and recommends the use of the SWIFTNet Funds ISO20022 compliant messages. Messaging Mainly fund managers 2007 www.org Swift 20022 SWIFT 2012 www.Industry initiatives and conclusion : a push towards efﬁciency Industry initiatives and conclusion: a push towards efﬁciency The fund distribution industry remains highly fragmented and complex.int Source: Ineum Consulting FUND DISTRIBUTION - In search of operational excellence: myth or reality?- 19 . AFAC is a group committed to driving STP initiative within the Asia Paciﬁc fund industry by deﬁning a common STP strategy for each country. The European Central Bank has been embarking in a challenging journey to resolve the complexity of the fragmented fund settlement issues through Target 2 Securities program.issanet. Transfer Agent. The ECB aims at making Europe a better place to invest and trade with multiple CSD by providing a single IT platform enabling settlement of securities and fund shares in Europe. usage of the SWIFT ISO 20022 messages.swift.
is a unique asset.300 employees in Algeria. Switzerland. based on its in-depth knowledge of its clients’ businesses and ability to implement speciﬁc solutions. the Netherlands. listed on the London Stock Exchange Contacts Michel Kabanga KAYEMBE Associate Partner Investment Funds Advisory Services. operational and technological decisions. Practice Leader Ineum Consulting Luxembourg Mobile : +352 621 32 01 95 Direct : +352 26 37 74 21 Fax : +352 26 37 74 982 kkayembe@ineum. Ineum Consulting. Australia.About Ineum Consulting Ineum Consulting is a strategy. It is part of Management Consulting Group Plc. Morocco. United Kingdom and the United States. Belgium. France.com 41 Zone d’Activité Am Bann L-3372 Leudelange Eric CRABIE Partner Ineum Consulting Luxembourg Mobile : +352 621 32 01 92 Direct : +352 26 37 74 20 Fax : +352 26 37 74 982 ecrabie@ineum. organisation and information systems consulting company. Luxembourg. The company’s range of services. Ineum Consulting has 1. objectively helps its clients make strategic.com 41 Zone d’Activité Am Bann L-3372 Leudelange .
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