Empowering fund managers by meeting investor and regulatory demands through enhanced transparency
Several important forces are at play challenging the status quo of the global fund management industry. KPMG reports that fund managers have faced fee compression and the need for greater operational efficiency in recent years. Their distribution partners are also pressured to provide their clients with higher service levels and accountability. The roles of distribution partners, such as IFAs and wealth managers, shift from merely selling investment products to offering comprehensive financial advice. Therefore, as the relationship with fund managers evolves, advisors increasingly seek to provide consultative support to help end customers achieve their financial goals rather than focus on product selections.  

This B2B2C (fund manager-to-distributor-to-investor) model is also experiencing other stresses. The average age of financial advisors is increasing, with a significant portion of them nearing retirement. This transition, combined with the rise of millennial investors who prioritise ESG and impact investing, requires asset managers to adapt their offerings and communication strategies. KPMG also points out that Millennials are particularly interested in sustainable investing, which necessitates providing fund lineups that meet these criteria. 

In Sweden, fund managers predominantly rely on distributors, such as execution only brokers, insurance platforms and banks, to increase their AUM. Another large distributor specific to the Swedish market is the Swedish Premium Pension system. When fund managers are largely dependent on external distribution, transparency of information disclosures becomes even more important. It enhances trust and credibility, facilitates efficient due diligence for distribution partners, and supports informed decision-making for investors. Add to this the ever-increasing level of regulation of fund distribution, including recent initiatives such as the Retail Investment Strategy (part of the Capital Markets Union 2020 Action Plan) and the current changes to the Premium Pension system which mandate fund managers to engage in procurement processes to have their funds included on the platform managed by the Swedish Fund Selection Agency.  

These regulatory shifts emphasise the importance of maintaining robust relationships with distribution partners, as these partners are crucial for effectively navigating the procurement processes and ensuring that funds remain accessible to a broad investor base. In this context, comprehensive and accessible product information is essential for adapting to these changes, making transparency a key factor in driving AUM growth and maintaining competitiveness in the evolving market​. 

Our recent study reveals significant gaps in the current transparency practices of Swedish fund managers. In this section, we investigate the impact of information disclosures on the funds’ relationships with distribution partners and investors. 

For distribution partners, enhanced transparency offers several benefits. Detailed and transparent product information facilitates due diligence and onboarding processes, making it easier for partners to assess and promote the funds. In that regard, the fund managers’ website is an important space facilitating the first step of the relationship. Improving the information disclosures educates potential partners about fund managers’ investment strategies, unique selling points, and governance profiles, which can help the distributors gauge the value fund managers’ products could bring to their platforms. With 70% of Swedish funds performing poorly in disclosing their product information, this strategy can be a relatively easy way to differentiate from the competition.  

Additionally, with financial planners taking an increasingly more comprehensive approach to helping customers achieve their financial goals and meet their ethical preferences, providing easy to understand and comprehensive product information will be an important advantage for the fund manager. The more compelling and accessible the information about financial performance, sectoral and geographical focus, and ESG profiles, the easier the investment decision-making becomes for the distribution partners. The ability to update and summarise this information depends on the underlying data management practices, and the quality of data presentation on the website is a good rule of thumb for a firm’s capabilities in this space. Our research revealed that over 60% of Swedish fund managers omit significant diversification and governance information on their websites. This certainly signals room for industry improvement in this area.   

Furthermore, information disclosures’ depth, presentation quality, and timeliness influence the fund managers’ brands. Transparent and comprehensive information enhances investor and distributor confidence, increasing retention rates and attracting new investments. Furthermore, a user-friendly and informative website enhances the experience for private investors and potential partners, making finding and understanding relevant information easier. Besides, the regulatory environment is also becoming more demanding in this area. The accessibility requirements in Annex I of the European Accessibility Act, Directive (EU) 2019/882 impose certain perceptibility, operability, understandability, and robustness standards on fund managers’ digital channels – to ensure that European customers have well-presented and user-friendly information for their investment decision-making. 

Given our extensive experience working in the financial sector, we believe that the difficulties the Swedish fund management industry experiences with summarising and presenting information about their products are largely due to inadequate data management processes, suffering from error-proneness, key person risks, and poor scalability. From our perspective, it seems likely that achieving success in brand management within the digital realm is one of the most robust strategies for future-proofing financial businesses. To support such endeavours, data management and related analytics are key areas fuelling such success.  

For example, implementing robust data aggregation and management solutions like KidbrookeONE can help fund managers streamline their data management processes, ensure timely updates, and provide comprehensive and accessible product information. This helps distribution partners and private investors make better-informed financial decisions, form strong partnerships, and tap into current customer demands. In addition, efficient data management processes also support efficiency compliance with the multitude of regulatory requirements for fund managers, further enhancing their competitive edge in the market, and ultimately driving growth in AUM.  

The Swedish fund management industry faces market pressure, regulatory changes, and evolving investor expectations. The industry must adapt to the demand for greater operational efficiency while navigating the shifting roles of financial advisors who transition from a product focus to a goal-based approach. The demographic shift with an ageing advisor population and the rise of millennials prioritising ESG and impact investing further complicates this landscape. In this context, transparency in information disclosures on fund managers’ websites becomes crucial. As our study reveals, significant gaps in current transparency practices present both a challenge and an opportunity for Swedish fund managers to differentiate themselves by improving their information disclosures. Enhanced transparency builds trust and credibility, facilitates efficient due diligence for distribution partners, and supports informed decision-making for investors. Comprehensive and accessible product information is essential for adapting to these changes, making transparency a key factor in driving AUM growth and maintaining competitiveness.

Read the original article here.