Technology and the fund distribution dilemma

With the European asset management market forecast to reach almost $37 trillion in size this year, the fund industry sits at a major inflection point.

The development and adoption of emergent technologies such as machine learning, Generative Artificial Intelligence (GenAI) and blockchain come against a backdrop of contrasting progress across digital and traditional fund distribution channels.

In turn, as investment management competition continues to grow, products proliferate, and the ‘retailization’ or retail distribution of a growing range of assets gathers pace, the need for fully coherent and efficient distribution strategies will continue to grow in importance over time. But is the technology that lies at the heart of fund distribution keeping pace with market change and, if not, when will it catch up?

Shifting sands

Fund distribution in Europe remains a multi-layered, complex network with numerous stakeholders involved. As the table below illustrates, technology plays a varying role across the asset management cycle.

Technology and the Asset Management Cycle

The fragmented nature of the European market, not to mention seemingly ever-changing regulation, can present complex distribution challenges for fund promoters.

In addition, many asset managers still operate outdated IT infrastructure that is difficult to integrate with modern technologies. This hinders the adoption of advanced tools and platforms that could help them modernize their businesses, increase efficiency, and extend their distribution reach.

Implementing new technologies also requires substantial investment, and the return on such investments is often uncertain. This financial risk deters many firms from diligently pursuing digital transformation.

But sentiment – and action – must shift. Ultimately, the future for many fund managers may well be more direct, more digital, and more data-driven, but the role of distributor, as a key stakeholder, will remain. Partnering with third party providers to provide the best distribution experience for both manager and end investors should, in our view, be a strategic focus.

The use of intelligent data could hold the key to success. Access to timely and accurate distribution data is crucial and greater digitization of processes will help drive better business outcomes.

Retail edge

A two-tier distribution landscape appears to be evolving, with retail distributors edging further ahead of their institutional peers in terms of technology transformation, thanks to standardization, growing scale, and the use of digital consumer friendly B2C fund platforms.

The pace of technology adoption in fund distribution varies sharply today between institutional and retail channels. The table below outlines this evolution, showing where each segment has come from, where it stands today, and the emerging innovations likely to shape its next phase

Institutional vs retail: technology usage in fund distribution

While institutional distributors are showing some signs of embracing technology strategically - particularly in areas such as data, environmental, social and governance (ESG), and private market access - they continue to lag their retail peers.

Why the difference?

Retail technology is built to serve thousands of individual, potentially tech-savvy users at once, which requires high levels of scalability and standardization. Institutional mandates require far more customization. Often, they involve long due diligence cycles with requests for proposal (RFPs) and investment committees.

In a digital age, the institutional fund distribution space still plays host to relatively high levels of manual reporting, while client negotiation and onboarding often involve paper/email workflows. Limited use of real-time sales insights and distribution performance dashboards are also common features of the institutional funds market.

Meeting the data challenge

In a world where one size cannot fit all, one thing is clear. The ability to offer a coherent data strategy that allows for easy-to-access, timely, and accurate information in different file formats has become an essential factor when dealing with the larger investment platforms and institutional asset allocators.

There are five areas that are especially ripe for fund managers to enhance distribution via data and technology:

• Digital distribution platforms – which can broaden reach and offer real-time analytics
• Automated onboarding – to lessen friction and provide faster access for investors
• Data-driven distribution – to enable personalization and which could lead to higher sales conversions
• CRM and marketing automation – to enhance segmentation and targeted communications
• Tokenization of funds – which can broaden investor access, especially to alternatives and private markets

The future of fund management isn’t just about managing money – it’s about managing digital experiences. Retail investors want relevance and an “experience” when buying funds. Institutional investors want integration, customized solutions and “high touch,” low friction execution and reporting. In today’s evolving world, fund manufacturers, distributors and administrators need to be able to deliver tech solutions accordingly depending on their role in the life-cycle of successful fund distribution.

In our view it is clear those who embrace a client focused, technology-led approach will be best placed to overcome challenges and grasp future opportunities in both the institutional and, increasingly, retail sectors.