My Diary 733 --- How to get your product on a distributor's plat

How to get your product on a distributor's platform

Article published on September 18, 2012
By John Sedgwick
Distributors are looking for asset management companies that focus on core, niche strengths and develop related flagship products that show depth in strategy to promote on their open-architecture platforms, according to Chandrima Das, Singapore-based head of mutual funds research at Bank of Singapore, a wholly owned private banking unit of OCBC Bank.

Niche players

“We have a huge preference for depth over breadth” at the Bank of Singapore, which has more than 100 funds from 60 providers on its open-architecture platform, according to Das, who spoke last week at the Fund Forum Wealth Investment Solutions Summit in Singapore.

“What we want to see are niche players. We want to see depth in strategies, and we want to see that fund houses are investing in developing certain parts of their business rather than trying to be everything to everyone,” she added.

She said many fund houses still approach the bank touting the numerous buckets they have in fixed income or their range of equities products. “This is exactly what we don’t want to see,” she noted.

Typically, a provider would not have a stellar strategy for all of its offerings, according to Das, noting that most would have “one or two good strategies”. Providers should focus on developing niche products that should become the core of their offerings, she said.

“For us, headline brands are less important… It is very more important to have the asset management companies being associated with a few capabilities that are core,” she said.

Even if a provider has the best team, the best strategy and the best process at a given time, this combination will likely be affected in the event of management changes, or mergers and acquisitions, according to Das, adding that product changes or closures could be among the impacts of such changes.

Getting on a distributor’s shortlist

Developing a focused approach will also likely increase the chances of a fund house to get its products on a distributor’s shortlist or master list, where the majority of the fund sales originate.

“I have noticed, from time to time, that 60% to 80% of all the sales come from that shortlist of funds,” Das said.

Many of the funds that Das evaluates have fund managers who are situated in either the U.S. or Europe, and regular contact with them is limited, she said.

“We would like to see more investment professionals passing through Asia and talking to us,” she said. “These could be product managers or they could be fund managers, but they have to be more than sales teams.”

This would help build trust in the strategies that company is promoting and would increase mutual fund penetration, she added.

In order to deal with clients effectively a fund selector wants to know very clearly from the relationship manager of the fund company: “Why this product, and why now?” according to Das.

Bullet points to convey to end-investors

Meanwhile, Das suggested that the manufacturer arm the distributor with “the top three bullet points” to convey to the client the strengths of the fund.

When a certain asset class begins to perform well, then the fund selector is approached by numerous fund manufacturers promoting their newest funds in this asset class. Currently, there is lots of discussion around U.S. high yield, global equities income or Asian dividend stocks, she said.

If other criteria are present, “performance is incidental”

Although performance is one of the criteria Das evaluates in the fund selection process, she said it is certainly not the single determining factor in choosing a fund for the bank’s platform.

“If you select a fund based on star ratings, or any other performance criteria, or any other criteria based on performance, there is a 70% chance that the funds that are the top quartile in the past three years won’t be in the same quartile in the next three years,” she said.

If the distributor determines that the fund provider has good portfolio construction, business management, is spending enough resources on risk management, and has the right building blocks, then “performance is incidental”, according to Das.

“What we want to see is focus on those asset classes where the valuation commands a good entry point, not those that have done well in the past 18 months,” she said.

Number of open-architecture platforms decreasing

An open-architecture platform – such as the one at Bank of Singapore – with no preferred providers and fee arrangements, as well as an impartial fund selection process based on independent research, can facilitate the selection of a product that is “genuinely best of breed”, Das said.

“In terms of the distributor, we are seeing less and less of this type of model in the market, [yet] this is the one that works in the best interest of the client,” she said.

A platform partner model provides the bank or the distributor with 10 to 15 preferred providers and special fee arrangements, while the in-house model, where all the manufacturing and distribution of fund products is kept within a single fund company, has grown in prominence since the financial crisis in 2008, according to Das.

Although an in-house model can sometimes offer the best product to the client, more often than not, that preferred provider model does not lead to this result, she said