Direct-to-consumer fund distribution gaining traction
Retail banks are slowly losing market share as a fund distribution channel in Asia, according to research released yesterday by Cerulli.
Banks only accounted for 37% of mutual fund distribution in Asia (ex Japan) based on the latest Cerulli Global Markets report down from nearly 50% a year ago.
The banks' dominant position has been shrinking for a few years now, as direct distribution and intermediary sales picked up traction.
Breaking down the AUM by distribution channel in 2014, Cerulli’s report showed that banks (36.8%) were still the dominant distributor in Asia, followed by direct distribution (16.2%), IFA (14.1%) and securities companies (13.2%).
“While bank networks will continue to dominate we already see pockets of deviation from the standard distribution model,” Cerulli said.
“There is a global trend toward robo-advice, especially in the United States, on business-to-business platforms, and more recently, direct-to-consumer (D2C) platforms.
At the same time fund manufacturers are looking at ways of distributing funds directly to the end investor,” it noted.
The Cerulli report also showed asset gathering opportunities in Asia. Fund managers should continue to look at North Asia as it provides the largest retail and pension saving opportunities.
The report listed China as having the largest asset size and the fastest growth rate in retail opportunities (based on 2014 AUM sizing and estimated 5-year CAGR from 2014-2019); while Hong Kong, China, Taiwan and Korea lead in retirement opportunities (based on total retirement sizing).
The research house, however, said fund managers have to be realistic about asset-gathering opportunities in China despite its huge economic potential. “The appetite to invest overseas is minimal,” said Cerulli of the mainland Chinese investors.
“Moreover, there is a wealth of private banking and insurance products that offer both liquidity and attractive returns. China is a long-term proposition,” it added. The mainland market however has been gradually opening up, with the latest initiative being the Hong Kong-China mutual recognition fund scheme, which allows foreign managers to distributed eligible funds into China for the first time.
Competition is also fierce in Asia. Firms should contend with the fact that asset concentration within the top ten managers in the region is high. Based on 2014 figures, 96.3% of the retail and institutional business in Hong Kong were managed by the top 10 managers. The figures were lower but still over 50% in Korea (64.6%) and Taiwan (58.1%). China had the lowest asset concentration rate at 49.5%, almost the same level as that of UK (50.5%) and US (55.0%).
Despite this, the research firm said asset management remains a profitable industry despite the downward pressure on fees, increased competition, and rising costs associated with regulation and distribution. Top executives in a Cerulli global survey earlier this year thought so too, with 54% of respondents said they expect to see the most revenue growth from the retail segment.