Emergence of the ‘professional buyer’ puts paid to shelf-space model

Retail distribution of managed funds is shifting away from the shelf-space model and towards advice-driven business as platforms take on the role as “professional buyers”, according to Cerulli Associates.

Thomas Marsh, director of Cerulli’s international practice, says that under the new dynamic emerging in various parts of the world, the distributor is taking on the funds manager’s former role as “packager” of the products. The distributor, as professional buyer, screens the best-of-breed funds managers, using both quantitative and qualitative metrics. The distributor packages the offerings into: multi-manager products, sub-advised and adopted funds, unit-linked products and structured notes. Marsh is delivering a paper at next week’s Investment & Technology conference in Sydney, entitled ‘Strategic Considerations for Global Distribution’. The conference, to be held at the Sydney Hilton Hotel on February 7, is presented in association with the Australian Custodial Services Association. Cerulli executives from Boston and Singapore are visiting Sydney for the conference and for their own workshop, on February 8, at which they detail the importance of the professional buyer and the changing face of distribution in Australia as well as other countries. Marsh says that there is a decreasing number of large global distributors as consolidation continues through M&A activity. Having tried vertical integration, where managers own the distribution and advice channels, the move is now back to separation of roles. “Vertically integrated distribution does not seem to work,” Marsh says. “Proprietary funds management does not appear objective.” He says that asset allocation and financial planning are being slated for mass customisation, which will allow distributors to spend more time and resources on packaging and solutions. “Shelf-space fund sales are yesterday’s model. Traditional wholesaling and strategic relationships may not work as well (in the future). “Professional buyers are increasingly driving the marketplace. They are applying institutional selection patterns … as funds are becoming component parts of investment solutions.” Marsh says that structured note vendors will become increasingly influential professional buyers, as their solutions are suited to the larger retail investors. Cerulli estimates that the multi-manager segment of the market in the US accounts for more than $US1 trillion. The research firm says that Australia remains “one of the world’s most vibrant multi-manager marketplaces”, with assets growing 38 per cent to $US71 billion in 2004. The outcome for managers is that they will become “more industrial, distilled and wholesale than before”, Marsh says. They will focus on the provision of alpha. Distributors will reshape fund delivery to promote their advice, although there is a long-term question involving credibility and commission payments.