I have been speaking a lot recently about how the industry architecture is changing, changing in line with regulatory change from being a product lead and product distribution architecture to a more consumer centric architecture.
So what is the difference ?
- Does the new architecture still involve platforms ? Yes (but they move from being menu driven supermarkets to back office outsourcers)
- Does the new architecture still involve those who deal with investors ? Yes (although the justification of their value may be a little more transparent)
- Does the new architecture still involve those who manage investments ? Yes … although….
- Does the new architecture leave the same environment for the commercialising of investment products ? NO !
So what does this last point mean ? Well it means that a lot of the behaviour that has developed over the last few decades in incenting layers of the industry between product provider towards the investor are undergoing change, as this is no longer to be permitted. Combined with the fact that if anyone was taking the risk for recommendation of products in less than a ‘perfect’ way, will now have a duty of care to choose the best product (or solution) for the investor.
The combination of these two points fundamentally iron out the industry architecture and ‘supply chain’ from being one where each layer has it’s own clients, relationships, management of such, metrics, focus, culture to one where the whole supply chain has to focus on in delivering transparent and more tangible value to the end investor who can see what they are paying for. It means that every participant has to stand up and focus on the rising sun of the new regulatory and consumer driven regime. All participants must fundamentally consider the value that they are providing, and for what costs, and as many others write about, at what risk.
The systemic impact of this need for alignment in focus of all areas of the industry towards this new world is now being starting to be understood, and a large part of this is the positioning of the value add of investment management. There is no doubt in my mind that this discipline adds consumer value, but what is happening is that this activity is moving closer to the client where, unlike in a ‘product’ where everyone is treated the same (remember how can it be right that the investments for a 20 year old be in the same fund as a 70 year old), by moving the process to the client can facilitate a high degree of personalisation and value creating ‘context’ for each investor.
With this we are seeing professionals with investment management skill sets popping up elsewhere in the supply chain, in boutique portfolio managers, in financial advisory firms, even in investment platforms where they can operate with perhaps a higher level of efficiency as they are closer to the registry of assets.
The next chapter which we are also seeing is that now product manufacturers are starting to respond to this and having to re-invent their proposition to compete. Productised ‘funds’ move over, it’s now about portfolios, portfolios about investors. The questions for many is ‘what value are you adding ?, how do you fit into this new era of proposition ?, what relationships do you need to change or develop ?, how do you get paid ?’.
Little doubt that some of you may be thinking about this already…..