Guided systems lead to good sales

Last year, commentators were saying the jury was still out on open architecture. But it is difficult to claim that this is still the case. And particularly successful has been the guided or limited system, using some selected partners, pioneered in Germany.

Deutsche Bank has recently re-affirmed its commitment to this system by adding a ninth preferred partner to its list. Branch staff will now also be selling a selection of funds managed by JPMorgan’s asset management company.

The system has probably been good for customers of banks such as Deutsche Bank, Commerzbank and Deka, although it is offered in slightly different forms for each institution. Just because you have a berth, it does not mean that fund sales are guaranteed. Some partners have complained previously that they have made big efforts to get onto a list of preferred providers, and they have not received adequate inflows to cover expenditure on marketing materials.

Now Deutsche has decided to come clean and intimate that if some groups have not received sufficient inflows, it is their own fault, as their structure is an institutional one, and they need to be more focused on retail distribution, with readable marketing material which does not need to be simplified for Deutsche’s retail and private clients by bank staff.

The guided system also allows banks to co-operate more closely with certain partners who offer particularly innovative investment ideas. This has been the case with Deutsche’s relationship with both UBS and Schroders, and Deutsche’s strategists are clearly impressed with Merrill Lynch’s expertise in natural resources.

The fact that Merrill has re-organised its entire German and Austrian operation to target banks such as Deutsche operating on the guided model, rather than trying to sell to fund of fund operations, shows that the relationship can be a very lucrative one for fund manufacturers.

Even the mighty Goldman Sachs Asset Management, previously concentrating on sub-advisory opportunities with the likes of insurance companies, is keen to get a slice of the guided architecture distribution action. In fact, the lure of preferred partnerships – previously barred to GSAM because of its limited fund range – was one of the reasons the US company decided to vastly broaden its Luxembourg umbrella range under Ucits III legislation.

Commerzbank, which prides itself for a retail-oriented, rather than private banking approach, has gone a step further than Deutsche in its monitoring of partners, protecting clients from those whose performance is not up to scratch. This slightly more interventionist approach to open architecture should be commended.

But once a partnership has been dissolved, it does not have to be for good. The bank recently said Invesco’s performance was too weak for the fund manager to remain a partner. The good news is that performance has improved, and the group could soon be invited back to preferred status.