UK Fund Manufacturers Must Forget Online Direct Sales, Forrester Advises
The Net will shrink fund manufacturers’ margins unless they use it to cut their trading costs by automating fund valuations, order processing and settlement. To prosper, Forrester advises that firms must use a few winning supermarket platforms as B2B matchmakers to link to independent financial advisors (IFAs) and other attracters — and implement straight-through processing (STP). Resolving multi-channel product distribution is a central theme of Forrester’s Financial Services Forum Europe on November 12-13, 2001, at the Queen Elizabeth II Conference Centre, London. In addition to senior Forrester analysts, the Forum will feature Mike Harris, Executive Vice Chairman, Egg; Hanspeter Kurzmeyer, CEO, Credit Suisse e-Business; David Weymouth, CIO, Barclays; and Xavier Azalbert, CEO, Xelector.
“Financial customers continue to move to the Net, where 8 million Britons already research financial products. Forrester sees this growing to 1.1 million online investors, generating £3.8 billion of gross fund sales in 2003,” said Forrester Analyst Charlotte Hamilton. “At present, fund management firms place their funds on an average of nine out of 11 UK supermarkets that offer consumers an open choice of products from multiple brands. These supermarkets will lead consumers to expect low fees and reduce fund marketers’ influence over sales. So, fund manufacturers must brace themselves for an online future where lower fees will require higher efficiency and larger trading volumes. Neither consumers nor IFAs will research and invest at multiple fund managers’ sites, so firms must give up their illusions of direct online sales. Instead, they must embrace the division of roles as manufacturers in Open Finance and use the Net to automate their relationships with the retailers that orchestrate consumers’ online experiences — including online IFAs and banks — and use supermarkets as B2B matchmakers to automate distribution.”
Making B2B partnerships work won’t be easy, but the more manufacturers join the electronic fund distribution networks, the more favourable terms they will reach. B2B distribution networks will crystallize around best-of-breed players — those that excel at their specialist role and interoperate with multiple partners most easily. This in turn will accelerate the consolidation of matchmakers and attracters. To accelerate the return of their multi-million-pound infrastructure costs, all fund supermarkets will white-label their platforms for B2B matchmaking, and only a handful will survive Europe-wide.
“Winners will offer consumers fund selection tools that will help attracters compete with other investment retailers — including risk profiling, automated financial planning and access to human advice,” Hamilton added. “They will also build B2B accountability and visibility — ideal B2B matchmaker partners will provide detailed distributor and consumer statistics including market share at the platform. Automated distribution will clearly give large, IT-literate attracters like banks an advantage over smaller, traditional advisors, and retail banks will gain B2B2C market share. Wealth management sites will have difficulty adding advice, and will struggle to position their offerings between those of high-touch IFAs and no-thrill retail banks. Finally, only the large IFAs will succeed online. The few IFAs that pioneered the Web and reinvented themselves as online attracters, like Charcolonline, will reap the benefits of their planning and advice tools.”
For the report “Automating Fund Distribution,” Forrester interviewed 30 of the largest fund manufacturers serving the UK retail market.