Data and information exchange

Future-proofing the fund industry

03 Octobre 2018 Par Maxime Aerts (Fundsquare)
Maxime Aerts: “Real-time data exchange, control and oversight of the complete fund distribution chain are a tangible goal, but it is one that will not be realised without adapting the existing systems.”
Maxime Aerts: “Real-time data exchange, control and oversight of the complete fund distribution chain are a tangible goal, but it is one that will not be realised without adapting the existing systems.” (Illustration: Maison Moderne)

Wide-reaching change is coming to the European fund distribution chain and it will be built on data and information exchange in an innovative ecosystem.

The European investment fund industry stands at the very beginning of a much anticipated digital transformation. 

In an industry that has its share of inefficiencies and outdated practices, primarily it is the need to reduce costs that is driving change. At last year’s ALFI Global Distribution Conference, the focus was very much on overheads and how, as the president of NICSA stated, technology “could enable huge efficiencies and make the industry far less capital intensive than what it is today.”

However, all fund industry players know that success in the future depends not just on cost reduction, which is only one half of the equation, but also on the ability to seize the many and varied opportunities for new business that will arise. 

On the other hand, success is not automatically assured, and it is not just in Europe that this will play out. International competitive challenges will be significant. Emerging regions are attempting to replicate the very successful UCITS passporting model and this is happening in countries whose share of global GDP has been steadily increasing over the years. 

Responding appropriately to demographic and social change will also be essential. An ageing population requires low-cost and safe collective investment while a younger generation, regardless of the service or product, now sees transparency and instant access to information as a given.

Digitalisation brings down costs and creates opportunities 

According to a recent survey from State Street (State Street Multi-Market Growth Insights Fund Strategy Survey Key Findings, July 2018), 88% of asset managers say that data related to distribution is a challenge for their business. The same survey found more than half who agreed that “the pace of industry disruption will increase, as new technology-­ driven challengers threaten incumbents’ distribution models.”

Steps towards future-proofing the fund industry, in particular fund distribution, involve bringing change to three main areas. They are investor experience, order management and transparency throughout the fund distribution chain. Assuming it is based on an innovative, industry-wide infrastructure and an interoperable ecosystem, the digitalisation of the distribution chain can offer efficient solutions to these issues. In this digitalised world, data, data quality and, crucially, information flows and exchange between all stakeholders will be fundamental.

Digitalisation responds to the need for cost cutting and, at the same time, creates the right conditions for future growth; by bringing fund buyers and fund producers closer together, by streamlining the fund distribution chain and by offering a strategic and real-time overview of the business. This results in fund producers being able to meet fund buyers’ needs and to expand their investor base via products and services innovation, while doing so competitively.

An interoperable ecosystem is key

Real-time data exchange, control and oversight of the complete fund distribution chain are a tangible goal, but it is one that will not be realised without adapting the existing systems. 

In the short to medium term, incumbents’ legacy systems, hybrid systems and fully digitalised ones will exist side by side, but all need to interact together. Here, the issue of interoperability will need to be addressed. An interoperable ecosystem, however, depends on significant cooperation and creative competition between stakeholders. 

Underlying such cooperation is the idea that going forward with an interoperable ecosystem means that actors must work together on a common goal: improving the entire chain for the benefit of the industry as a whole, including investors.

To sum up, digitalisation and interoperability can provide real benefits for the European investment fund industry. We are at the beginning of the journey and taking the right first steps is crucial.