Third-party offerings taking europe by storm

PWM: How popular is open architecture in the French market? Marc Raynaud: Open architecture is more and more popular in France because investors are demanding it. If we don’t do it for them, our clients would end up doing it themselves by opening accounts everywhere. We manage around €200bn in assets, out of which our own mutual funds represent €75bn. In addition to his, we also advise and distribute €13bn of mutual funds managed by third parties. So the proportion of external funds distributed is quite high compared with some of our competitors. Together with our online broker, Cortal Consors, we have set up a separate company, Cortal Consors Fund Management [CFM], in charge of selecting third-party funds and third-party managers. Mario Petrachi: We are the only institution concentrating third-party selection in one single entity at group level. CFM is in charge of selecting third-party funds, managing funds of funds and also of selecting external managers for some of our own funds. PWM: Do you see any resistance among French retail banks in applying the principle of free availability of third-party funds? MP: Distributing third-party funds through retail branches for the mass affluent client is pretty difficult, mainly because of the structure of the branches themselves. Large banking networks have a lot of things to do. They have to open checking accounts, they have to sell credit cards, insurance policies, etcetera, so they are not yet very open to third-party funds. Because they have other priorities distribution of funds has to be limited in number and they tend to concentrate on a limited range of funds managed by their captive fund management company. Clients could bring their own portfolio of third-party funds into a branch or request third-party funds from their banks, but this is a passive open architecture because it’s brought in or requested by the client. However, there is a trend towards distributing third-party funds through fund of funds and our retail network is doing it already. PWM: Private banks are more likely to be open to third-party funds. Why is this? MP: Private banks are one of the most attractive sectors when it comes to open architecture. Their clients are much more sophisticated than those of retail banks. Also they don’t want to put all their eggs in the same basket and, most importantly, the private banker is not in charge of distributing funds but of managing the assets of his clients, that involves selecting third-party funds that fit in with client requirements. Private banks in general are among the largest subscribers to third-party funds. PWM: Why have French managers been so successful in distributing their funds across different European countries? MR: I think that one of the differences between French managers, or in general continental European managers, and UK or US managers is that we are better when it comes to adapting our products to client requests. A good example of this is Parvest, our Luxembourg Sicav, that has seven different categories of shares to adapt our offering to the countries where it is distributed, without affecting the management side. PWM: Which are the countries where you see more potential for open architecture and distribution of third-party products? MR: We started distributing funds in the Italian market in 1995 with Parvest and today the fund is authorised for distribution in 24 countries. Today we have close to 1000 distribution agreements worldwide, with around 400 coming from Italy so this is a very important market for us. Other important markets are Spain, Austria and Germany, but in general we are present in every major continental European country, as well as in some countries in Asia. PWM: What about the UK. Do you think depolarisation will bring many opportunities for manufactures like yourselves? MR: There will definitely be more opportunities in the UK as a consequence of depolarisation, because it will allow us to register and sell our funds through distribution networks other than independent financial advisers. However, what I see is that the opportunities will be for very specialised firms and niche products and not for wider distribution because the competition is very strong. Parvest will be registered in the UK this year and we are setting up a team for servicing this. It is a big market and it is worth being there.