Regulatory & Consumer Issues category

EFAMA leads the asset management industry in a call for pan-European long-term savings product in closed door session at FundForum International 2010

July 2, 2020

Jean Baptiste de Franssu, President, EFAMA speaking at FundForum International 2010

Eddy Wymeersch, Chairman, CESR at FundForum International 2010

In an intense and wide ranging meeting which included those representing the regulatory view, the investment industry and investor representatives today, five key issues were debated in the new closed door session at FundForum International 2010.

The panel, moderated by Tom Brown, Partner at KPMG, consisted of Eddy Wymeersch, Chairman of CESR; Jean-Baptiste de Franssu, President of EFAMA; Consumer advocates Mick McAteer and Guillaume Prache; Marc Garvin, Chairman International Business, Treasury and Securities Services of JPMorgan as well as the members of the EFAMA President Advisory Council: Juan Alcaraz, CEO of Allfunds Bank and Santander Asset Management; Dominique Carrel-Billiard, CEO of AXA Investment Managers; Alain Dromer, CEO of Aviva Investors; Roderick Munsters, CEO of ROBECO, Martin Gilbert, CEO of Aberdeen Asset Management; Allan Polack, CEO of Nordea Savings and Asset Management; Peter De Proft, Director General of EFAMA and Claude Kremer, Vice-President of EFAMA.

First up on the agenda was the issue of long term savings and distribution in particular on the back of the report entitled Revisiting the landscape of European long-terms savings published by EFAMA at the beginning of the year.

The attendees were supportive of creating a pan-European long-term savings product which will meet the needs of the ageing population of Europe, one of the greatest challenges facing Europe today. It is the European asset management industry’s aim to provide a solution to this problem. European consumers need a product that is simple, cost effective and transparent to encourage long term savings which the investment management industry can provide. Effective distribution and advice on savings products across Europe are major challenges, from a regulatory, supervisory and commercial standpoint.

The second issue under debate was shareholder engagement, both in terms of activism and stewardship. Asset managers need to go beyond a short termist approach and engage in a long term dialogue with the companies in which they invest. The group acknowledged that it is essential to find the right balance between their fiduciary duties to their investors and their role as investors in a company, and to find proper mechanisms for effective engagement.

The third item on the agenda was the evolving supervisory framework in the EU and how it will impact on the asset management industry. ESMA, one of the three new authorities will be an independent body not comparable to the SEC, operating as a co-ordinating rather than guiding force. The aim is that will ultimately lead to a more harmonised approach in regulation across Europe.

Turning to the issue of new regulation for depositaries, the industry representatives said that the existing global custody model has served the industry and investors well but there is a legitimate argument for strengthening investor protection. The industry representatives on the panel felt that new regulation should not lead to an overhaul of a well established body of practices.

The session concluded with a look at the growing fund group of ETFs. Panellists discussed how the characteristics of these funds have an impact on existing distribution models.

Concerns about growth of hedge funds using Ucits

June 29, 2020

Claude Kremer, Chairman, ALFI speaking at FundForum International 2010

Speaking today on the rise of Newcits, Claude Kremer, chairman of Alfi, pointed out that there is no such thing as Newcits: “It is purely an imaginative term used by the press” he said. Who would have thought that the Undertaking for Collective Investments in Transferable Securities as Ucits started out, would have gone so far from those safe transferable securities. The earlier session had Manfred Schraepler, head of fund structuring at Deutsche Bank, detailing how big their business on the Ucits funds platform has grown over the eight years they have been in business.

Kremer described the Newcits phenomenon as a convergence of hedge funds and Ucits, and an opportunity for traditional offshore style hedge funds to come onshore, thereby creating a whole new market for their wares. “Is there a reason for concern?” he asked. “Is it one bridge too far?” The regulators are concerned because Ucits is a product designed primarily for retail investors. There is no doubt that Ucits based on hedge funds are popular. A recent study by Lipper numbered them at 650 with US$ 100 bn in Euros in assets.

Toby Hogbin, Director, Martin Currie speaking at FundForum International 2010

Toby Hogbin of Martin Currie said: “The Ucits franchise gives a veneer of regulation for potential investors.” He added that Ucits is now a global franchise, with 40 per cent of sales coming in from non-European domiciles. But it is a franchise that appears to offer safety in uncertain times. The growth in funds under management in Ucits style hedge funds is driven by fear and an investor need for liquidity. It is perceived that Newcits offer that and believed that risk money is going into these products.However, Peter Branner of SEB, offered a more scary scenario going forward. “I foresee a Madoff within the Ucits framework” he said.

The panel was largely agreed that, as ever, manufacturers or distributors of these products alike need to ensure that clients understand and know what they are buying.

FundForum International 2010 - an overview

June 24, 2020

An Article by Beverly Chandler.

Beverly Chandler will be covering FundForum International 2010, 28 June - 2 July in Monaco

The European asset management industry had just earned a brief moment to draw breath and evaluate where it was at the end of the prolonged period of upheaval caused by the sub-prime crisis when, lo and behold, along came violent volatility caused by continuing fears of credit risk across Europe.

These spread from Greece, but panic is, as we have seen, contagious, and fears have threatened to spread through the Euro zones in Spain, Portugal, Ireland, and into the Sterling-led UK to any European country that has a cripplingly high level of national debt.

The sub-prime crisis sparked off other dramas. We appear to have forgotten Dubai and its many financial problems which have been swept under the UAE carpet but played its part in rocking financial markets earlier this year.

Against the backdrop of loss and indebtedness, we have our perennial Western problem of an ageing population.  The question of who will fund the retirement years of a population dominated by people retired, not working, has been at the heart of a push to achieve above average investment returns for at least 20 years. Our original pension model of today’s workers funding today’s retired was predicated on a healthy balance of the two, the current and ex-workforce.  Demographics have put paid to that.

And where perhaps before, saving a portion of your income as a matter of course was embedded in a national psyche that had come through two world wars and a great depression, saving went right out of fashion.  Particularly in the UK where there always seemed to be another easier source of capital available to give you that money in the bank feeling which fuelled the ‘I’m worth it’ generations into spending more than they earned, often borrowed at easy  interest rates.

Within the UK, that money came from the UK’s flourishing property market where everyone it seemed could buy a house, make a quick return on it and move on. In an even more extraordinary extension of that pattern, ordinary people with no background in property development or property investment could build up a portfolio of properties and let them at a profit to others who were just waiting to get onto the same cycle.

It is a truth universally acknowledged that savings rates need to go up, in every sense of the phrase – we need to save more but we also need to earn a greater reward for saving. While interest rates remain dismally low for savers, they need to look elsewhere for returns on their money.  Across Europe, despite the shock and awe and the volatility experienced by those invested in equities over recent years who experienced a massive loss, a massive rally and then quite a bit of both, many traditional fund groups have experienced net inflows over the last year.

We live now in a financial world where neither banks nor governments have the appetite or the resources to lend money any more. Net inflows into funds suggest that investors are choosing investment in funds to secure their futures.  Actively managed funds, achieving better returns than those available on deposit, are what is needed to encourage investors to save and to offer them returns that are worthy of that effort.  The investment industry in its widest definition is at a crucial point in this process and must step up and produce the returns that will secure the financial security of future generations.

About Beverly Chandler

Beverly Chandler has been a specialist financial writer for a number of years, writing for most of the trade press, a number of national newspapers and publishing a couple of books on the Hedge Fund industry.  She will be covering the FundForum International 2010 conference, producing a daily digest of the key outtakes from the event, and interviewing speakers & delegates about prevailing industry trends, their views of the future and why FundForum International is the “must attend” conference in the annual calendar.

Consumer Education: Whose job is it and how to do it?

June 23, 2020

An Article by Todd Ruppert, T. Rowe Price.

Todd Ruppert will be speaking at Fund Forum International 2010, 29 June - 1st July in Monaco

Studies across Europe and globally confirm that financial literacy is a growing priority. Yet surveys and academic research show that while the need for financial education has never been greater, there is much work to be done.

In addition to consumers, the investment industry also stands to benefit from a more financially savvy public – and should embrace financial literacy now more than ever.  Clients with greater financial knowledge will be better equipped to make investment decisions appropriate for their goals and circumstances. As a result, they are more likely to be satisfied, leading to stronger, long-term relationships.

Of course, we cannot expect to educate everyone to be their own Chief Investment Officer. Many investors simply do not have the time, interest or wherewithal to make complex financial decision or keep up with managing their investments.

Innovative solutions such as target date funds can, in part, address this piece of the puzzle.  So, too, can services which automatically enroll defined contribution plan participants and increase their savings rates over time, and which are growing in popularity in the US.  These approaches remove some of the complexity from a client’s decision making and – using findings from behavioral finance research – put investor inertia to use for their own benefit.

Offering new products and services in a vacuum, however, is not sufficient, as investors still need to have a basic level of understanding of those products.  Combining automation with investor education will be more effective, although even that has its limitations.  To provide a foundation, we first need to educate the broader consumer market about basic financial planning.

Although financial education can be introduced at many ages, educators, researchers, and parents increasingly advocate starting financial education as early as age eight.  The need is clearly there. In a Junior Achievement-Young Enterprise Europe survey this past March of more than 1,200 Europeans across 19 countries, 78% said that young peoples’ knowledge of their own personal finances is ‘little’ at best.

Similarly, a recent T. Rowe Price Parents, Kids & Money Survey revealed that while 80 percent of parents says they are having conversations with their children about money at least once every few weeks, fewer than half of their children use the lessons on a regular basis, and nearly 60 percent quickly forget the lessons or need periodic reminding. The survey also showed that on average, parents grade themselves a “B-” when it comes to their own overall understanding of basic saving and investing principles.

Facilitating family financial education is one reason T. Rowe Price collaborated with Walt Disney Parks & Resorts Online and Walt Disney Imagineering and to create The Great Piggy Bank AdventureSM, an online game and theme park experience which offers lessons on goal-setting, saving vs. spending, inflation, and diversification.

In Europe, EFAMA recently released a report regarding the long-term savings challenge.  Their call to action for the asset management industry included promoting financial literacy and competence of individual investors.  To ensure the future and strength of our industry, we must embrace this effort.  It’s no longer a question of ‘Should we do financial education?’ but rather, ‘How do we do it?’

About Todd Ruppert, T. Rowe Price Global Investment Services

T. Rowe Price Global Investment Services Limited, is responsible for T. Rowe Price’s business outside of the United States, ex-Japan, and T. Rowe Price Global Asset Management Ltd, which is responsible for the firm’s business in Japan .  Mr Ruppert cam to T. Rowe Price 18 years ago having previously worked for Citicorp and an engineering firm that designed physiological dynamic motion simulator for pilot training.  Upon coming to T. Rowe Price in 1985, he focused solely on business within the US.  He was first responsible for developing T. Rowe Price’s business of managing investments for banks, insurance companies and other third party distributors.

This document has been issued by T. Rowe Price Global investment Services Limited, 60 Queen Victoria Street, London EC4N 4TZ, which is regulated by the UK FSA.  This material is not intended for use by Retail Clients, as defined by the UK FSA.

T. Rowe Price, Invest With Confidence and the Bighorn Sheep logo are trademarks and/or registered trademarks of T. Rowe Price Group, Inc. in the United States, European Union, Australia, Canada, Japan, and other countries. This material was produced in the United Kingdom.

The Fund Industry’s future: a key to the retirement time bomb?

May 25, 2020

A view from the investors’ side; an article by Guillaume Prache, EFI -

Guillaume Prache will be speaking at FundForum International 28 June - 2 July 2020 in Monaco

The years to come may well be critical for the fund industry. The 2010 FundForum edition wisely includes interactive sessions between the industry and the end investors (its clients) on key issues such as investment approaches and regulation. We are grateful for this initiative.

Indeed, investment funds do provide a collective solution enabling end investors to diversify their portfolio and to benefit from continuous professional care. The fund industry has made great progress in the recent decades, and the European regulators have helped by creating the standardized pan-European UCITS and improving those with the recent UCITS IV Directive including such key new features as the “KID” (Key Information Document). At the same time, European citizens are likely to rely more and more on their personal investments to fund a longer retirement life;

  • as pay-as-you-go pension systems are reducing their benefits,
  • as defined benefit plans shrink and defined contribution ones (often fund-based) grow,
  • as Solvency II is pushing insurers further away from equity investments (and therefore unfortunately from sustainable long term investment performance),
  • and their clients further into unit-linked products. Read more »

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