The UK and the international cross-border markets are the largest individual markets for funds in Europe. Distributors here are more open to third-party funds than those on the continent and the UK platform space now stands at €640bn, of which €470bn is in funds. While individual regional characteristics remain, the single market is advancing, as we can see through the €2.7tn international Ucits space.
The chart below, from the Platforum European Fund Distribution update, shows how much individual countries are dominated by a few fund groups. Those with lower levels of concentration have more open architecture distribution and provide more scope for foreign funds.
The second-largest European country market is Germany and, with Austria, these two markets work differently from the UK market. The main difference is that universal banks on the continent are the primary distribution channel, with substantial tied sales forces and often their own asset management divisions.
However, looking at these markets in detail, you can see that fund selectors influence fund flows more than in the UK. The 1,200 German Vermoegensverwalters (wealth managers) and their Austrian equivalents are independent and open to new ideas as long as they are supported by robust processes. Similarly, the smaller private banks are less likely to have internal asset managers or rigid preferred partnerships in place.
Although Germany has introduced legislation banning commission payments from underlying funds for some fee-based advice, the reality is that uptake of this distribution model has not proved popular with wealth managers or financial advisers, and in fact they are not obliged to choose it.
Also, this system is based on task-based advice charged at an hourly rate and is unlikely to be the prevalent model post-Mifid II.
“Looking at these markets in detail, you can see that fund selectors influence fund flows more than in the UK”
So we don’t know how fund distribution will change in Germany post-Mifid II for wealth managers – a problem shared by most other EU countries on the continent. A homogenous system akin to the post-RDR UK model may emerge but, conversely, substantial regional variation may survive.
Interestingly, we see a couple of significant UK trends mirrored in the Schengen Area, particularly in Germany and Austria.
One is the growth of multi-asset funds, whose assets under management increased by more than 20 per cent in Germany over 2015. This is the third year of strong flows into mixed assets, making it the largest asset class.
There is also great interest in ‘robo’ in Germany, with as many as 40 propositions in the market. As in the UK, there is a wide spectrum, ranging from automated investment managers with discretionary permissions to fund-screening tools attached to execution-only brokers.
Notable start-ups include Vaamo and Scalable Capital, but the banks are also involved, including Deutsche Bank’s AnlageFinder on its Maxblue digital banking platform and Comdirect’s AnlageAssisten (Commerzbank).
It is hard to see Brexit having much immediate impact on UK retail investment distribution in the short term. Retail investing is an area where UK domestic rulemaking is running ahead of the EU and we wouldn’t want to lose the ability to act as the obvious gateway for global fund groups looking to access the €6.6tn European retail fund market.
Given that we have the advantage of the English language, a well-developed ecology for investment and the huge impact of the RDR is already a known quantity, losing the ability to ‘passport’ retail financial products and services might be considered careless.
Jeremy Fawcett is head of direct at Platforum.