Open architecture yet to become de rigeur

How successful has open architecture distribution of investment products been for the business models of banks and fund managers? This was the question PWM asked at the first Open Architecture Forum held in London last year.

Thomas Balk, head of European business at Fidelity, said that for the future of funds distribution, open architecture was the only game in town. Every big player, whether manufacturer or distributor, would benefit from the trend.

Twelve month on, as we approach our second summit, there is still no indication that Mr Balk’s predictions will be proved correct. When Jörg Brock, Commerzbank’s head of product development for private clients, began advocating the sale of externally created investments through branches in 2001, he was told by some colleagues that this amounted to “corporate suicide”.

This did not stop him. The bank introduced a selection of such products for all client segments. Mr Brock knew he was taking a risk. “The introduction of open architecture leads to internal conflict, but there is no opportunity without risk, and no risk without opportunity,” said Mr Brock last year.

While the new strategy had been accepted by Commerzbank’s asset management department, the product manufacturers feared that falling revenues from selling in-house funds would not be replaced by sufficient third-party product sales.

These fears remain. Today, the Commerzbank Asset Management Group concentrates on just three European markets, of which Germany is by far the largest. French and UK subsidiaries increasingly manage money for German clients.

Small-cap European equities, for instance, are now managed by Jupiter in London, rather than by Comminvest in Frankfurt. This works out cheaper and more profitable for clients.

The asset management division is under pressure to upgrade its product offerings – difficult in a cost-cutting environment. There is also the problem of a restricted market. Unfortunately, other banks are not opening up as quickly to third-party products.

At Deutsche Bank, there have been accusations that preferred providers are not getting their fair share of the cake. Some fund groups paid substantial contributions to “marketing” costs to get onto the favoured list of eight houses, according to Axa in Frankfurt. But do their earnings from fund flows match the outlay in expenses?

All of these issues will be debated at the Open Architecture Forum 2004 at the Hilton hotel in London’s Park Lane on 17 November. BGI, BNP Paribas, CDC Ixis, Standard Life and Goldman Sachs are all sponsors. European distributors, including Deutsche Bank, Credit Suisse, UBS and Citibank are sending speakers. I hope to see as many of you there as possible.

Free registration for the Open Architecture Forum 2004 is available to distributors.

E-mail: mike.barker@ft.com

Tel: +44 (0) 207 382 8184