It’s 60 shopping days until the implementation of MiFID II. The directive is set to impact fund pricing, transparency, advice models and third-party product offering. With the RDR in place since 2013, the UK investment industry is ahead of the game in many ways, providing competitive advantage for some UK retail investment providers.
Expanding into Europe can help to safeguard passporting rights after Brexit. Most importantly, new business awaits for those who get it right but there are fundamental differences between the UK and continental markets:
- Banks control 75-80% of the distribution of retail funds in continental Europe compared to 5-10% in the UK.
- 70% of the distribution is captive in continental Europe (e.g. banks selling their own funds) compared to 15% in the UK.
Source: Platforum European Fund Distribution reports
Here is a brief summary of opportunities for UK providers:
Asset managers
They can now take their clean share classes into other countries but they must be prepared to meet distributor demands which will be different to the UK. We expect banks to segment their customers into discretionary portfolio management, non-independent advice and execution-only. The last two will involve rebates for the time being but successful partnerships with banks will pay off. Large asset managers can leverage their brand and resources to target retail banking while boutique firms will find more open doors in the private banking space.
The European Commission has set out some common standards for fund distribution through independent advice or rebate-based services. These include the requirement to offer an appropriate number of third-party products. Open architecture is set to grow.
Platforms
UK platforms are yet to export their expertise. Novia and Praemium are trying the expat advice niche but no one has really gone for a European market. There are dynamic adviser segments in France and Germany – Italy and Spain are more of long term shot.
DIY investing is growing rapidly in the Netherlands and the Nordics. Germany is a large market. There are examples of successful multi-country direct platforms: BinckBank and Nordnet.
In addition, platforms are allowed to take payments from asset managers elsewhere in continental Europe and there is no sign of new regulation to change this.
UK providers looking to be successful in the continent will need to target specific markets carefully, paying extreme attention to local characteristics. The journey won’t be easy. But there is a sizeable opportunity of more than £7 trillion sitting in cash. The MiFID II clock is ticking.