Ahead of the first ever Fund Platform Group Awards on 27thNovember, we speak to Mr. Edouard Bokuetenge about the current state of the fund platform industry and his outlook for the future.
Considering the whole value chain within the fund industry, where do you see the value add of fund platforms?The major value add is their role in helping create an efficient environment that has allowed the smooth growth of the open architecture fund distribution model. One way that this happened is that platforms have taken on a lot of the operations that distributors used to do themselves via their back offices. This shift has significantly reduced the cost of doing business for the whole industry. Beyond cost, a further value add has been the risk mitigation that platforms have been able to offer. Thanks to their experienced teams, combined with a great deal of technology, they have been able to massively decrease the market exposure link to the fund order execution process.
What are the main differences between fund platform business models?There are a lot of different fund platforms available on the market for third-party fund buyers. The differentiation comes from the types of services that they will offer. Some provide core services, such as execution and settlement only, while others add on additional extras, such as revenue sharing, management information, analytical and fund selection services. The other key element that separates different platform providers is their geographic footprint. Buyers will have to look at different platforms depending on whether they focus on domestic, regional or global coverage for their needs.
At what elements should one focus on when choosing a platform provider?The most important element is client satisfaction. At the end of the day if a provider has clients that appreciate the service that is always a good place to start! A key question, however, is on the quality of client service when something goes wrong. A good platform must have a strong team that is both efficient and responsive to clients when they need help the most. The quality of technology is also vital. Most platforms should have up to date infrastructure as it is a relatively young industry, but it is vital that a provider is at the cutting edge as this allows them to provide easy access to information. It is also important to have a good understanding of what the platform’s organisational framework is. A buyer should have enough information to feel confident of the quality of the management team and the processes that a platform has. Buyers also need to consider whether a single platform can be a one-stop-shop for their needs. To this end, the more funds available and the broadest range of geographies accessible, the better. The relationships that a platform has with counterparties are also important. For example it should be clear how they organise and connect with their network of transfer agents. Last but not least, however, it is key to ensure that the platform offers the type of services that are needed. Does it cover all the bases in terms of extra value-add services like dedicated reporting, revenue sharing or analytical services? If a buyer considers all of these different elements when selecting a platform it will help ensure that they can pick the right provider for their needs.
Observing market needs, what new services should be offered by fund platforms in the near future?The goal for fund platforms should always be the same, it should be about striving to provide a one-stop solution where a consumer can fulfil all their investment needs in the same place. To do this a provider needs to be able to offer multiple fund types (e.g. mutual funds, ETFs and hedge funds) through a single, comprehensive and easy business route. The Holy Grail would be to be able to provide such an offer on a global basis. At present no one can truly offer this, but some platforms are coming close and this is the next logical step for the industry.
From which parts of the world do you expect to see the biggest interest in fund platforms and why?Asia and Latin America are the two regions we expect to see big growth in demand for fund platforms in the future, as there is a significant appetite for the fund product there and the level of automation and efficiency can be significantly improved. Furthermore, both geographies have a regulatory framework that is less prohibitive than in Europe or in North America. With all those elements they represent appealing regions for platforms to do business there. In Europe there is still potential for growth in the industry, but there is a high level of concentration of platforms that should lead to mergers, acquisitions and outsourcing exercises. In addition, a vast majority of the new regulations that will come into force in the coming months will create a new paradigm that will cause a lot of actors to redefine themselves.
Do you see any regulatory changes that can impact the fund distribution model and how?We have seen a great deal of regulatory change and this will certainly have an impact on the open architecture distribution model. Around 90% of fund platforms in Europe were driven by a revenue sharing model. However, this historical model will be challenged under MiFID II. All the regulatory changes have been brought in to protect the end investors, which is a positive step, but the unintended consequence of this is that the cost of distribution will dramatically increase. Major fund distribution actors are now questioning whether they should move away from promoting third-party funds towards a more exclusive focus on their own products. At the end of the day a vibrant and powerful open model is in the best interests of the end investor. We are therefore eagerly waiting for final guidance from ESMA on the practical implementation of the MiFID II, but based on what we have seen so far we consider that we could miss the creation of the “virtuous circle” that was initially expected.
By Lee Godfrey