Cross-Border Distribution Conference 2015 Digest

Cross-Border Distribution Conference 2015 Digest

Contents Introduction 3 1. Getting it right: The importance of corporate culture 4 2. From the factory to the market. How to serve the product needs for different clients in various markets? 5 3. Access to mass affluent investors via platforms 6 4. Opportunities in China and China views on distribution opportunities in Europe 7 5. New opportunities in South America 8 6. Brave new world? Impact of regulation The view from the regulator 9 7. Workshop 1: Experiences of AIFMD marketing rules and private placement 10 8. Workshop 2: Governance of distributors 11 9. Workshop 3: Distribution Opportunities of UCITS and AIFs 13 Cross-Border Distribution Conference 2015 Digest 2

Introduction On 3 March 2015, Deloitte Luxembourg and Elvinger, Hoss & Prussen organised the third edition of their annual joint Cross Border Distribution Conference at the New Luxembourg Congress Centre Kirchberg in Luxembourg city. The topic of the day - Cross Border distribution What does the future hold for UCITS and AIFs brought together around 500 pan-european industry experts. Luxembourg, in its role as the largest investment funds domicile in Europe and the second largest worldwide after the United States, plays a central role in the distribution of investment funds. The objective of the conference was therefore to offer a platform to the participating experts to exchange on the impacts of the recent wave of regulations and other forces at work on the industry. Key challenges and opportunities such as the new digital economy and its impacts on classical distribution models, as well as the opportunities for asset managers in emerging markets such as China and South America have been covered during the conference. One of the consequences of the financial crisis in 2008 has been a wave of new regulations for the Investment Management industry, aiming at increased investor protection and systemic stability of the financial markets. Among others, the distribution of mutual funds is particularly impacted by the regulations (e.g. MiFID II, RDR) to an extent that the distribution landscape in Europe will change in the coming years. During the conference, experts have exchanged on the potential reduction of the historic distribution models and emergence of technology based, efficiency and cost driven distribution models. The partial ban of inducements for distributors also opens the door for asset managers to re-connect to their clients. After all, these new regulations might come at a cost but also bring opportunities for market players. Another hot topic of the day was the digitalisation of the economy that is strongly impacting the banking and asset management industry. The past decade has radically changed the communication and consumption habits of the populations worldwide. This wave of digitalisation also impacts the financial sector, and in terms of fund distribution, especially the retail and mass affluent sector may benefit from new distribution facilities. Interesting ideas around Robo advisory and on-line platforms have been discussed during the day. It was also on every participant s minds that the asset management industry needs to get closer to the end investors to re-build the trust harmed after the financial crisis and help them identify their savings needs and to be able to benefit from this new wave of distribution. In light of the re-building trust, social networks or other internet service providers entering the asset management space will most probably have a key role to play. Lastly, emerging markets are becoming more and more important for the asset management industry to capture new assets under management. Both China and some South American countries now offer strong opportunities for European Asset Managers. South American pension funds are already key investors in European UCITS and still represent upselling potential. The Luxembourg regulator is very keen to collaborate with Chinese and South American regulators to facilitate investments in both directions. Cross-Border Distribution Conference 2015 Digest 3

1. Getting it right: The importance of corporate culture Speaker: Edward Bonham-Carter, Vice Chairman, Jupiter Fund Management PLC Creating a corporate culture is a challenging task and there is no one size fits all approach. Generally speaking, the smaller the company, the easier it is to create a common culture that is shared among employees. The same rule applies to single location companies versus global companies with multiple offices across the globe. Moreover, organic growth supports the creation of a strong corporate culture, while growth through acquisitions complicates the creation of a common corporate culture as different cultures are mixed under one rooftop. Succession planning within the (senior) management gives a good insight on a corporate culture, as one can see what matters to the company and the management in times of changes (i.e. falling away of the eager and the recognition that the team and the organization is more important). Culture comes from all parts of the organisation, but especially the senior executives should apply a walk the talk strategy when it comes to corporate culture, because it is through examples that the culture is passed on through the organisation. In asset management, it is particularly difficult to create a corporate culture. Fund managers are often unusual individuals with special attitude towards human relationships, risk, and their strengths and weaknesses, and often have an artistic approach to capital markets. (i.e. they do not overly rely on financial models). As they are not always keen to take investment decision in committees, it is crucial to have a culture of sharing (investment) ideas across all levels. Diversity in (among others) cognitive behaviour is also important both to identify good (investment) ideas and increase the corporate culture within the company. Relatively to other industries, asset management is a rather measurable industry and a fund manager should therefore have a mixture of conviction and confidence, stay humble about his capabilities and not forecast the future as we all know the future is not predictable. This measurability generates pressure on the profession that does not necessarily exist in other industries. This can be turned to an advantage by focusing on the investment objectives of the clients (that is beat the benchmark after all costs in Jupiter s case). Corporate values in Asset Management should centre on customer values and objectives, and not necessarily shareholder values. Given the low levels of trust that society has in financial organisations, asset managers have a responsibility towards the end clients to build strong long-term relationship based on trust. If you manage to create such relationships, shareholders will get their payoff automatically without having to put them at the centre of your corporate values. Talking about corporate culture is not complicated but very hard to put it into tangible actions and practice, but it is the highway on which outperformance travels. Cross-Border Distribution Conference 2015 Digest 4

2. From the factory to the market. How to serve the product needs for different clients in various markets? Speaker: Dr. Matthias Liermann MD Global Head of Product Platforms, DWS Investments Investors are facing a period of uncertainties We are entering a decade of equity and there is a strong shift towards alternative asset classes such as Real Estate Multi-asset funds experience a strong increase in Assets under Management Digitalisation is changing the way of mutual fund distribution in its velocity and level of competition Despite the European passport, country specificities still increase the time to market for cross border fund distribution distribution licenses to different countries means increasing the complexity for product distribution. Even though Luxembourg is the main domicile for UCITS in Europe, other countries have positioned as strong domiciles (e.g. France, Ireland, Germany). Positioning Luxembourg as a hub for AIFs, replicating the success of UCITS, will be much more difficult for two main reasons, firstly, the target audience for these products is much smaller and it has taken almost 20 years to position UCITS as the main choice for retail investors. Since the financial crisis in 2008, investors are facing a difficult and unpredictable period due to low economic growth, low yields for bonds and a shift in currency strengths. Indicators have shown strong inflows into equity and multi-asset class funds over the past years after the crisis that is also reflected in the strong growth of stock indices in developed markets since 2009. Especially multi-asset class funds show very strong inflows since 2009 with annual growth averaging 49% in the period of 2009-2014. The recent wave of digitalisation across industries also impacts distribution models of the financial services industry. Lower entry barriers bring new competitors and revamp old distribution models and oblige financial service providers to rethink their strategies. In the future, we could clearly see players like Amazon or Google offering financial services reducing market shares of conventional banks. Instrument types also vary across markets. While the main instrument in the US is the 401k savings plan, in Asia we observe different investment products (including European UCITS as a leading product). Although UCITS are designed to be offered cross border, increasing the number of Cross-Border Distribution Conference 2015 Digest 5

3. Access to mass affluent investors via platforms Moderated by Michael John Flynn Director ACG, Deloitte Luxembourg Panelists: Chris Edge Chief Executive Officer, HSBC Securities Services Olivier Huby Chief Executive Officer, MFEX Group) Richard Lepère Managing Director Fund Channel SA Ian Taylor Chief Executive Officer, Integrated Financial Arrangements plc. Mass affluent investors are defined as the segment of investors with wealth between USD 100,000 and USD 1,000,000 including property minus debt 373 million adults worldwide fall into this bracket In Europe, only 8.5% of household wealth is invested in investment funds MiFID II and RDR aim at increasing transparency in cost and advisory cost for the investor Low/negative interest rates might change this ratio as there is currently low incentive in putting money in a bank account At the same time, this segment cannot afford or is not necessarily ready to pay for advice, increasing pressure on asset managers to enhance their offering in lower cost products Currently 41% of European household wealth is held in cash accounts, which offers very important upselling opportunities for asset managers, as the constantly low interest rates not only represent an opportunity cost but a real cost net of inflation if an investor keeps his money in savings accounts. potentially new market players. On the other hand, the regulator limiting investor s access to complex instruments (including certain UCITS structure) conditional to professional advice is not systematically facilitating the development of investments into mutual funds and mixes up the principles of complexity and risks. Mass affluent investors have become increasingly cost sensitive when it comes to their investments, both due to bad experience of bank s advice as well as due to lower returns (i.e. clients are not ready to pay for bad advice anymore). This also partially explains the growing success of ETFs over the past years. Retail and mass affluent investors at the lower end of the scale do not generally have the required portfolio size to justify paid advice. The larger a mass affluent investor s portfolio becomes, the more imminent becomes the need for advice and complex solutions. The wealthier an investor, the more willing they are to pay for advice. Banks and asset manager cannot ignore the digitalisation of financial services. Digitalisation does not only mean sending account statements electronically but goes far beyond that. The financial industry could be compared to the travel industry, where the booking process has completely changed over the past 10 years due to digitalisation. This change in distribution patterns is a tremendous change for the whole industry. Offering low cost execution models via platforms is therefore a viable option for asset managers to capture retail and mass affluent investors that are reluctant to advice and very cost sensitive. In a near future, one could also imagine those clients being directed by so called Robo advisers, meaning online platforms based on algorithms to identify products in line with the investor profile. Recent regulations aiming at increasing investor protection and bringing back trust to the industry is considered as a positive initiative. Regulations like MiFID II (and its UK predecessor RDR) aim at excluding the commission bias and including transparency in the advice equation. These regulations may trigger room for execution only models, thus Cross-Border Distribution Conference 2015 Digest 6

4. Opportunities in China and China views on distribution opportunities in Europe Moderated by Nicolas Mackel Chief Executive Officer Luxembourg for Finance Gast Juncker Partner Elvinger, Hoss & Prussen Panelists: Michael Chow Managing Director Fullgoal Asset Management (HK) Ltd) Joseph Ho General Manager Overseas Business Division ICBC Private Banking (Head Office). China has now replaced the US as the world largest economy As part of internationalisation strategy, the Renminbi is increasing in importance and is now the 5th leading payment currency and 2nd leading currency in trade finance China is opening its capital markets to foreign investors via specific investor licenses (e.g. QFII, RQFII) A large portion of the world s Renminbi deposits are held outside of China that could be captured in Renminbi UCITS funds 6 of China s largest banks run their continental European operations from Luxembourg The CSSF was the first regulator outside of greater China to authorise UCITS to invest fully through an RQFII quota and to allow UCITS to invest on the Shanghai Stock Exchange using Shanghai-Hong Kong Connect The Chinese regulator has created specific licenses for financial institutions allowing them to invest in the local Renminbi denominated Chinese capital markets (i.e. QFII, RQFII). This is the first effort to open the stock markets in the country with quotas for these licenses that are constantly being raised to increase the internationalisation of the local stock markets. Luxembourg UCITS have been able to invest in Mainland China via QFII for a number of years and via RQFII since 2013, which makes Luxembourg a very interesting fund domicile for Chinese products. Important elements to consider for operating such a fund are however the selection and due diligence process of local brokers and sub-custodians as well as safekeeping and segregation requirements with the sub-custodian. In line with its efforts of internationalising the capital markets, Luxembourg plays an important role as a hub for Renminbi denominated trading and banking activities. Accepting QFII and RQFII to be linked to UCITS structures as well as the strong position of Luxembourg on the UCITS market in general is a further major selling point for the Luxembourg market place. Luxembourg can offer Chinese banks the necessary flexibility to evolve and expand their international activities on the European market. Cultural differences need to be considered when launching activities in Europe to further accelerate a strong collaboration between Luxembourg and the Chinese banks. Digital asset management platforms are well developed in China despite the low margins on the money market funds which constitute the largest product share on those platforms. Historically, mutual fund distribution was dominated by the four major banks, but a new wave of distribution such as the recent launch of an online distributed money market fund that raised USD 95bn hit traditional asset managers by surprise. Asset managers will need to discover how to capture the digital generation to invest into their products online. One cannot ignore the potential of the Chinese market for the asset and wealth management industry by using Renminbi denominated investment products. For the time being, Luxembourg is still waiting for the confirmation to be granted RQFII quotas like it is the case in the UK and France. This would be an additional major accelerator and attractiveness criteria for Luxembourg becoming the leading financial place for China funds. Cross-Border Distribution Conference 2015 Digest 7

5. New opportunities in South America Moderated by Jérôme Wigny (Partner, Elvinger, Hoss & Prussen) Panelists: Denise Voss Conducting Officer, Franklin Templeton International Services S.à.r.l.) Claudio Basso Head of Multimanager Department, Deputy-CIO, AZ Fund Management S.A. Jaime de la Barra Partner, Senior Investment Strategist, and Regional Head of Business Development, Compass Group South America offers two main opportunities for developed asset managers: Sell Luxembourg products in the region Export local Asset Management capabilities to the region ALFI has been negotiating with South American regulators to facilitate distribution of Luxembourg domiciled UCITS in the region Local pension funds have strict rules in terms of leverage and use of derivatives compared to UCITS requirements Taxation and pricing for local pension funds investing in UCITS remains an issue that needs to be resolved The Association of the Luxembourg Fund Industry (ALFI) has been in close negotiation with South American regulators to increase Luxembourg s UCITS attractiveness to local pension funds and investors and to facilitate investment into these structures. For example, currently roughly 50% of Chilean pension money is invested offshore and most of it invested in UCITS (both actively managed and ETFs). The Brazilian regulator recently published a reform introducing notions of professional and qualified investors and their allowances to invest part of their wealth offshore (up to 100% under certain circumstances that are favourable to Luxembourg). Local pension funds are allowed to invest up to 20% into UCITS structures. Considering the size of the Brazilian market (200 mln individuals), this represents a considerable opportunity for European asset managers and the Luxembourg fund industry. The Chilean pension fund market can invest into UCITS structures and already holds a significant part in those vehicles. The advantage of the Luxembourg as a fund domicile and the lower compliance costs of mutual funds compared to separated accounts in the region favour the Luxembourg model. Ireland, although in a same regulatory footing than Luxembourg, has lost its position when it was downgraded during the financial crisis and thus became ineligible for pension funds. This strong position of Luxembourg funds for Chilean pension funds might only be threatened if the US pursues its efforts to sign a double tax treaty with Chile as pricing for the funds (US funds could offer cheaper products) as well as fund sizes (that would have lower impacts in US funds due to overall size of some US funds) are issues that need to be considered. Another constraint for South American pension funds to invest into Luxembourg UCITS are the high transaction fees. Moreover, South American pension funds prefer plain vanilla structures without the use of leverage and derivatives, therefore maximising the use of the UCITS directive are less interesting for South American pension funds. The 2008 crisis also impacted the volatility and liquidity requirements of these funds impacting the eligibility to invest into UCITS. Chile also requires a local pension fund sponsoring the licensing of a foreign fund for local distribution. Making Alternative Investment Funds eligible for Chilean pension funds is more challenging as alternative investments usually work via LP/GP structures which Chilean pension funds are not allowed to sign. Other common models (such as Private Equity investment in India via Mauritius) might be challenged by the Chilean regulator. Cross-Border Distribution Conference 2015 Digest 8

6. Brave new world? Impact of regulation The view from the regulator Jean-Marc Goy Counsel for International Affairs, Commission de Surveillance du Secteur Financier (CSSF) Interviewed by: Yves Francis Managing Partner, Deloitte Luxembourg After years with a high pace of new regulations following the financial crisis, we are now entering a consolidation and ex-post valuation phase Now is the moment for (European) regulators to take a step back and assess whether the recent regulations really add value and investor security to the financial markets The financial industry changed its approach towards regulations, focusing on the strategic opportunities brought forward (e.g. AIFMD) Demand will show whether European Long Term Investment Funds (ELTIF) are a real necessity The post crisis years have been characterised by a high burden of new regulations for banks and asset managers across Europe and worldwide. Although these regulations aim at increasing investor protection and systemic stability, they also translate into complex projects and day-to-day costs for the industry. As most regulations are in place, it is now the time for regulators to take a step back and assess the results of the past years and whether the regulations really provide investor protection and systemic stability in the financial sector and thus, add value to the overall economy. Although regulations have been criticised at the beginning, the industry changed its point of view towards a more proactive approach with regards to new regulations and now try to identify strategic potentials for re-orientation following a new regulation (e.g. AIFMD was much criticised in the beginning but has steadily evolved into a well-accepted regulation opening new opportunities for asset managers). When criticising a local regulator, one should always keep in mind that the number of supranational regulatory bodies is constantly increasing and the real decision-makers are not always sitting within the local regulator. Moreover, when the industry is asking and lobbying for a common approach across jurisdictions (e.g. within the EU), there is a high likelihood that new rules are stricter given the requirement to reach consensus in the EU. The increased levels of on-site visits with regulated entities and especially with depositaries is a consequence of the amplified responsibilities of depositaries with the fund operations and the regulator s desire to ensure that all requirements are met within the different regulations. One could debate whether European Long Term Investment Funds (ELTIF) as a product are really necessary as UCITS are often used for long term investments, but ELTIFs are specifically designed for infrastructure financing, which is not the purpose of UCITS and difficult to combine given their open-ended nature. However, as the product has just been created, it will be up to the investors and the market to decide whether they require such an instrument. The question of extending AIF distribution to other third party countries is currently being addressed by ESMA through an on-going opinion paper to the attention of the European Commission. A Memorandum of Understanding is a prerequisite for such distribution and ESMA Members already have signed many with authorities from third countries. There are however still a lot of open questions to be clarified such as distortion of competition (reciprocity with other jurisdictions), tax issues with third party jurisdictions, supervision and enforcement of the rules outside of the European Union. Cross-Border Distribution Conference 2015 Digest 9

7. Workshop 1: Experiences of AIFMD marketing rules and private placement Moderated by Sophie Dupin Partner, Elvinger, Hoss & Prussen François Kim Hugé Director, Deloitte Luxembourg Three different types of marketing possibilities for AIFs: EU Marketing Passport National placement regime Reverse solicitation (not really to be considered as marketing activity) It is not required to be physically present to market an AIF in a given market to distribute products (e.g. it could be done via a website if precautions are taken to target the right investors) Today, only European AIFMs marketing an European AIF may benefit from the EU marketing passport If you cannot get an European marketing passport, you can opt for the national placement regime Following the AIFMD, Alternative Investment Fund Managers (AIFM) today have various options to market their products within the European Union. In principle, once they are licensed as an AIFM in one Member State, they are allowed to distribute European AIFs in all 28 EU Member State using the EU marketing passport. Despite the EU marketing passport, there are still local specificities that an AIFM needs to respect when licensing in a given market (e.g. registration fees per subfund, local requirements, etc.). When an EU AIFM intends to market an EU AIF in various EU jurisdictions, the AIFM only needs to send the notification to the regulator where it is regulated, and the local regulator has 20 working days to send the notification to all regulators in the jurisdictions where the AIFM intends to market the AIF. However, some countries do gold plating of the notification and licensing process and have additional requirements before approving for marketing and distribution (e.g. licensing fees, local agent, etc.). If the AIFM does not benefit from the EU marketing passport, it can opt for a national placement regime and run through the full licensing process in each market it wants to distribute its products in. This option increases the time to market as licensing processes vary across countries. Another option to distribute AIFs is the reverse solicitation, where the burden of proof is with the AIF that no marketing activity has been performed and the investor subscribes to the fund without any prior communication. This option can be considered as a risk for the AIFM in case the investor turns against the AIFM (e.g. after a market turmoil with significant asset losses). A general observation is that the demand for the passport is not as high as it has been expected by industry players. The passport might not be the ideal tool for all investor types and investment strategy that the investment manager has in mind. However, considering the time it took for the UCITS passport to become popular, AIFMD might also just need some time. Cross-Border Distribution Conference 2015 Digest 10

8. Workshop 2: Governance of distributors Moderated by: William Jones Founder and Senior Partner ManagementPlus Group Sylvie Baijot Deputy Chief Executive Officer BNP Paribas Investment Partner Graham Goodhew Director and Conducting Officer J.P.Morgan Asset Management Governance in fund distribution has drastically changed in the past ten years. The broader geographical footprint and the regulators have increased due diligence requirements. Various actors have largely rolled out an intermediated distribution model (e.g. some Management Companies have drastically reduced the number of investor accounts in their funds registers). The most typical distribution governance model consists of having the Management Company acting as Global Distributor and appointing local or regional sub-distributors. Larger actors appoint up to several hundreds of sub-distributors. It goes without saying that oversight of distribution activities have become a key aspect of the day-to-day of the Conducting Officers of Management Companies. The principle is rather straight forward; the Management Company must understand how its products are distributed with the aim to avoid miss-selling to the end investor. In practice, this regulatory obligation is not as easy. This trend is further underlined by the regulators appetite (e.g. FCA) to strongly link distributors market research and appropriateness of the products sold to the end investors. MiFID II will also play a major role in the further strengthening of the regulatory requirements to mitigate of missselling. All these drivers represent game changer for fund distribution. Nonetheless, one thing will remain unchanged, the Management Company s responsibility for distribution. This aspect is very important and will considerably increase initial and on-going due diligence requirements but also increase the quality criteria to select fund distributions. In addition to the regulatory risk, reputation risk may be more crucial in the oversight of the sales network. Speaking about due diligence, we can commonly observe 2 different levels. The first layer is generally driven by the local or regional sales teams which have a strongly increased role in investor due diligence and AML & KYC documents collection. It is also key to appropriately train these local teams to evidence the suitability of the products sold to end clients. A second layer consists in having a centralized compliance team at the level of the Management Company. This team shall represent the gatekeeper of the distribution activity of the Management Company. Best in class actors have sound client acceptance committees, escalation processes, daily transactions reviews, periodical ownership verification controls. In order to appropriately fulfil its gatekeeper function, this central compliance team shall be segregated from the sales of products. Such a double layer of distribution governance requires an effective and sound control framework. A documented risk assessment policy describing the frequency, depth and breadth of the controls performed is more than a nice to have but it is systematically requested by regulators during on-site visits. This risk assessment process shall, among other, cover the following areas of controls: country of origin of the distributor, regulatory status, and types of funds sold versus sophistication of the sales partner, quality of training provided, geographical footprint of the distributor, use of wrappers for the sale of products, nature of the target market, public exposure of conducting persons etc. In addition to the risk assessment policy, sound distribution agreements are a key aspect in distributors governance. It is crucial to contractually define the level of responsibility, role and responsibilities, KYC/AML process, trading details, late trading and market timing controls, partial vs. the full fund range coverage, geographical coverage, liability clauses, right for on-site due diligence and so on. From experience, negotiations of Cross-Border Distribution Conference 2015 Digest 11

large distribution agreements can take up to two to three years. Speaking of on-site visits, these shall of course not be systematic. Pragmatic Management Companies will reserve to use their on-site due diligence rights to high risk actors. The industry is currently seeking for synergies for distribution oversight. Initiatives emerge around the mutualisation of due diligence documents through repositories. ISAE 3402 can also be a facilitator in the due diligence process. These additional layers of control will drive discussions on profitability of distributors or of the business in general. Smaller companies prefer to outsource a part of the oversight activities to focus on their core activities, creation and management of products. Luxembourg is increasingly becoming an oversight centre of the global investment fund distribution but the cost of doing business has increased. Cross-Border Distribution Conference 2015 Digest 12

9. Workshop 3: Distribution Opportunities of UCITS and AIFs Moderated by: Peter Preisler Head of Distribution for EMEA, T. Rowe Price Luxembourg Management S.àr.l. Enrico Turchi Managing Director and Conducting Officer Pioneer Asset Management S.A. Jason Trepanier Chief Operating Officer, Natixis Global Asset Management International Christophe Girondel Global Head of Institutional and Wholesale Distribution, Nordea Asset Management The recent wave of financial regulations will lead to a consolidation of the distribution market and increase distribution efficiency The end investor will be the ultimate beneficiary of this increased efficiency A pre-crisis problem that still persists is the fact that asset managers have no direct contact to the end investor and are thus often unable to identify their real needs Surveys indicate that most retail investors have no clear idea on their targets they want to achieve with their investments and how to achieve them This indicates that there continues to be a lack of education on the retail market Retail investors do not focus on relative returns (i.e. performance against a benchmark) but absolute returns (e.g. whether they will be able to pay their kids college) Recent regulations (RDR and MiFID II) have a major impact on both the traditional distribution models of mutual funds itself but also, on its related costs. The largest challenge is to cover different distribution models (independent vs. non-independent advice) and markets (markets may differ depending on the national rules for distribution such as in the Netherlands) using a single platform to keep costs manageable. A consequence is a proliferation of multiple models and share classes which will increase costs. Cross-Border Distribution Conference 2015 Digest 13

Eventually, the new requirements will lead to a consolidation in the distribution market and increase the overall efficiency of the distribution value chain as the market will be compelled to increase its efficiency. The new generation of digital natives will have a completely different approach to their investments and retirement planning to which asset managers and distributors will have to adapt to. Asset managers need to think of their products as expected outcome rather than a portfolio composition. This is also in-line with the observation that most retail investors do not place importance on relative performance of their investments but focus primarily on the absolute fund performance. A digital strategy is not developed overnight and consists of many different elements. Accessing the investor via digital channels and providing investors with information and online asset selection tools ( robo advisors ) are only a few elements to cite. Although asset managers have been trying hard, they continue to struggle to capture the real investor needs as they are often not in direct contact with the investor but only with the intermediary. The new regulatory requirements and the likely consolidation of the market can be a chance for asset managers to re-connect to the end investor and identify their clients needs. However, one also observes that retail investors lack education when it comes to their financial planning. Asset managers and distributors also have a stake in providing this education to get a better understanding of what their investors are really looking for. Even though MiFID II changes the distribution landscape, investors will always have to pay for good (and independent) advice. For the moment however, investors are not ready to pay for the advice and the lack of education and advice leads to miss investments that could be avoided (e.g. focus on bond instruments in low-yield environments). Industry experts predict that as there is increasing transparency of former pricing models, many investors will be disappointed when they find out on what they have paying for advice over the past decades. MiFID II and similar regulation are a large opportunity for asset managers as the distribution activity has been somehow set out of the loop which invariably opens new possibilities for asset managers to connect with the investor directly without having to pay the distributor. Moreover, asset managers have all the necessary tools to service their investors and help them take the right investment decisions. The challenge here is to find the best way to connect with the end investor and educate them to build their portfolios for longterm savings considering volatility and risks. Cross-Border Distribution Conference 2015 Digest 14

Contacts Deloitte Luxembourg Elvinger, Hoss & Prussen Yves Francis Managing Partner - CEO + 352 451 452 248 yfrancis@deloitte.lu Jacques Elvinger Partner - Head of Investment Funds +352 44 66 44 5412 jacqueselvinger@ehp.lu Investment Management Vincent Gouverneur Partner - EMEA Investment Management Leader + 352 451 452 451 vgouverneur@deloitte.lu Benjamin Collette Partner - Global Investment Management Consulting Leader + 352 451 452 809 bcollette@deloitte.lu Jérôme Wigny Partner - Investment Funds +352 44 66 44 5233 jeromewigny@ehp.lu vgouloitte.lu Gast Juncker Partner - Investment Funds +352 44 66 44 5232 gastjuncker@ehp.lu Sophie Dupin Partner - Investment Funds +352 44 66 44 5464 sophiedupin@ehp.lu Advisory & Consulting Lou Kiesch Partner - Regulatory Strategy +352 451 452 456 lkiesch@deloitte.lu Simon Ramos Partner - Regulatory Strategy +352 451 452 702 siramos@deloitte.lu Michael Flynn Directeur - Regulatory Strategy +352 451 452 060 mjflynn@deloitte.lu François Kim Hugé Directeur - Cross Border Fund Registration Services +352 451 452 483 fkhuge@deloitte.lu Deloitte is a multidisciplinary service organisation which is subject to certain regulatory and professional restrictions on the types of services we can provide to our clients, particularly where an audit relationship exists, as independence issues and other conflicts of interest may arise. Any services we commit to deliver to you will comply fully with applicable restrictions.due to the constant changes and amendments to Luxembourg legislation, Deloitte cannot assume any liability for the content of this leaflet. It shall only serve as general information and shall not replace the need to consult your Deloitte adviser. About Deloitte Touche Tohmatsu Limited: Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/lu/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 210,000 professionals, all committed to becoming the standard of excellence. 2015 Deloitte General Services Designed and produced by MarCom at Deloitte Luxembourg Deloitte Luxembourg