No-nonsense take on delegated funds
The acid test of open architecture lies in distributors’ willingness to part company with fund houses who renege on promises made to the client
Selection of sub-advisers and underlying funds is a serious matter and one that is beginning to receive wider attention. Not just from private banks, fund houses and life companies, but from the overall parent groups, which run these separate entities.
This formalisation of strategy selection techniques at senior management level has become a key theme in the development of open architecture among Europe’s wealth management groups.
PWM recently held its annual roundtable on the outsourcing of asset management strategies to external fund houses. Five of the seven private banks participating had established their own internal fund selection units. For some of the players, this was not a new phenomenon. Investment Solutions at UBS and Funds Research at SocGen have been around for several years. But CFM, a new unit at BNP Paribas, was formed only last year.
More than hype
Of course, there has been much mocking of the French bank by rivals, with accusations that the move is just part of a marketing-led hype of the “open architecture” concept.
True, the “best of breed” selection process will help BNP Paribas to win new clients. There is also a hint of truth in the accusation that the French house has embraced open architecture in its private banking subsidiary, fund management arm and life insurance company, but not through its flagship retail branch network. Then again, funds of funds are available through the branches, with some use of external strategies.
What swings the argument in favour of or against groups like BNP Paribas may be their attitude towards their end customers. Real open architecture is not only about selecting managers, it is about de-selecting them when necessary, and taking full responsibility for the choices made.
Under review
This is where Paribas has passed with flying colours. Under the new regime, its high yield manager, T Rowe Price has already been replaced. There has been an accompanying no-nonsense pronouncement by Frank Monier, head of fund selection at BNP Paribas. Speaking at PWM’s Zurich event he said that all sub-advisers are now under review. He was not just talking about performance.
He was talking about the style in which funds are managed. The key is to make sure that sub-advisers or managers of external products are actually delivering the strategy promised to the client in the prospectus. Short-cuts can lead to disaster. How managers are chosen and monitored and what drives their choice have been the key questions answered by PWM’s pan-European panel of institutions in our latest research document, published with this issue.
The research has concluded that it is not the search for alpha which drives the outsourcing of assets. It is the desire to deliver a broader range of products to clients.
