2006: the year of the consumer?

November sees one of the most important events in the PWM calendar, our annual Open Architecture Forum, now its third year. In 2005, we are concentrating on consumer-led issues and how they are feeding through distributors to the manufacturers of products.

This may be quite an obvious slant, but the consumer’s voice has never been a popular one in an industry dominated by large banking conglomerates which both manufacture and distribute their own products.

Open architecture is essentially a movement that has emerged due to consumer demands, although distributors have very much shaped the way it has developed. Global distributors such as Deutsche Bank have called the shots once they announced their plans to move to a ‘Guided’ model, where they signed agreements with up to eight preferred providers.

Some of these providers have done well, Fidelity in particular. Others such as Alliance Capital have had more mixed results. Invesco, which was storming ahead in the early days, has fallen back. In this month’s Distribution Models feature, Invesco’s CEO for Continental Europe, Jean-Baptiste de Franssu admits that sales through Deutsche branches have fallen well below his three-year $1bn target, due to quality issues within equity products, which have since been addressed. Similarly, Commerzbank, another early German mover in guided architecture, has cancelled its preferred partnership with Invesco for product-related reasons.

There is some good news here for the consumer, with signs that these global distributors are at last beginning to monitor their managers in an institutional style. But they do not yet have full sub-advisory status. If a manager is performing poorly, or there are risk control issues, is the name of the fund house, a ‘preferred partner’ after all, removed from the bank’s doors? In most cases it is not, until a “review” has taken place. To our knowledge, Deutsche Bank has not yet removed any badges from its doors, despite performance issues. If a client has lost more than 40 per cent in a European equity fund and goes back to the adviser who sold it, then who is responsible, the introducer at Deutsche or the fund manufacturer?

But with the type of relationship fostered by distributors including Abbey and Natexis, both of whom are sending their heads of manager selection to speak at our Forum, a multi-manager structure means funds can easily be terminated and substitutes, already tried and tested, are brought on straight from the bench. The distributor remains accountable to the end client. With sub-advisory relationships increasingly perceived as a sub-set of open architecture, it is a good time to address their influence on relationships with the customer.

There are still complimentary places for banks, insurance companies and wealth managers available for this year’s OA Forum, to be held on 1 November, with speakers from Barclays, Credit Suisse, Julius Baer and Nextra. To register online, visit www.ftbusinessevents.com