Cross-border funds access still limited
Europe’s distributors are denying customers access to the full range of cross-border funds as it is more economical to sell products manufactured internally.
When a customer enters a bank branch in Europe, how confident can they be of accessing the best funds available?
Deutsche Bank’s Private & Business Clients division believes customers looking for performance can find what they need. Their due diligence team narrowed down the funds universe to eight strategic partners. There are also less high-profile agreements with a plethora of providers. Now Deutsche’s provision of external funds is being rolled out through Spain, Italy and Belgium.
ABN Amro is already being proclaimed as “Holland’s Deutsche” after a move to sell funds managed by a limited number of external providers. Yet if we take a closer look, one thing becomes clear. The best selling funds in Deutsche branches are not those of UBS or Fidelity. They are in-house funds manufactured at DWS. Similarly in the Netherlands and France, banks report it more economical to sell products manufactured internally.
The European Commission has long been working on a system to free up cross-border distribution, to make sure an individual in Athens can buy a product manufactured in Frankfurt.
The first of three Ucits directives, drawn up to allow unhindered cross-border marketing of collective funds, was passed in 1985. But 19 years later, these directives are used predominantly to sell funds managed in one country to individuals living just round the corner.
The latest Ucits III regulations allow banks to sell a broader menu, including funds of funds, money market and cash funds, index trackers and products using derivatives. They also demand a simplified prospectus to be provided by manufacturers marketing Ucits-stamped funds in the European Economic Area. This will ideally be a double-sided, single page giving details of investment policy, performance, risk profile, charges and total expenses.
The problem, according to Timothy Shipton, investment management partner at solicitors Linklaters, who numbers Merrill Lynch, Morgan Stanley, Julius Baer, Axa and State Street among his clients, is that regulators are unable to keep up with the timetable for the new prospectus. Banks are also undecided as to the terms of “standard disclosure” of fees and how performance should be calculated, says Mr Shipton.
Even if products made in different countries can be compared, if distributors do not make them available, they simply cannot be bought. Surely the true sign of a level playing field will come once the European Commission instructs banks to make competitors’ funds available to clients. “That would really go against the trend of European distribution,” smiles Mr Shipton.
