Asset Servicing Industry News | Product development strategies must be driven by evolution, not proliferation, says ALFI panel

Product development strategies must be driven by evolution, not proliferation, says ALFI panel

Trying to evolve current product development strategies, instead of proliferating them, is how product managers will stay ahead of the innovation curves and regulatory hurdles of the future, commented the panelists at the Association of the Luxembourg Fund Industry (ALFI) Asset Management Conference in Luxembourg.

The panel, led by Rosheen Dries, Partner, Head of Wealth and Asset Management for the EMEIA region at EY, explored the likely evolution of product innovation and strategic structuring in the context growing ESG initiatives and increased industry regulation.

During the session, Dries asked panelists how, broadly speaking, product innovation can prevent proliferation and ensure that the mutual fund economy delivers desired returns for investors and managers.

“Product managers face many external factors, whether it’s from ESG pressures or digital assets as a new product,” Dries said. “What is the difference between proliferation and product innovation? And how can product managers find the balance between real innovation and adding functionality to products – meeting the known needs and the unknown needs of investors? »

In response to the question, Suzanne Williams, Global Head of Product Development at HSBC Global Asset Management, said: “Evolution is the word I would use.”

“Industry needs to create cutting-edge products. As product professionals, we must be ready to bring these cutting-edge products to market. We need to give investors options and provide solutions to investors’ needs, needs that may not be obvious at first glance.

Williams added: “Meeting the needs of investors in existing products can ensure we don’t have proliferation. As such, we must continually review products and, where necessary, evolve them so that they are ahead of the curve to meet the needs of investors. Developing existing products rather than creating new ones can be profitable both for the houses but especially for our investors.

“However, bringing new, innovative products to market will always be necessary. In doing so, it is important to review ideas and instill those ideas through in-depth analysis to meet investors’ needs and create robust products. Innovation is about a quality product, not necessarily quantity.

Peter Preisler, Europe and Africa Manager, Marketing and Client Relations at Oaktree, said: “There needs to be an ongoing dialogue with existing investors. Product managers must understand market trends and focus on product evolution to continue to meet investor needs.

Finbarr Browne, CEO of Schroders Investment Management (Europe) SA, pointed out: “Clients will certainly tell you what they need, but you also need to use analytical tools to help predict future needs as data emerges through customer engagement and market insights.

“Product innovation is accelerating and the definition of the product itself may need to be broadened as it must incorporate many new developments in the underlying investment strategies, the nature of the vehicles used and ultimately account, how it might be sold to customers.”

He added: “Asset managers don’t want proliferation; trying to sell many small products and establish their track record is difficult, you will also create inefficiencies in terms of management and operational effort. The current challenge is that there are so many new investment strategies emerging now, particularly driven by regulatory changes such as the Sustainable Financial Disclosure Regulations, so there is an increased risk of proliferation. It is therefore very important to have a solid and controlled product development process.

Dries then asked the panel whether fund administrators would be able to keep up with the current pace of innovation.

Browne said, “Many fund administrators are relatively early in distributed ledger technology (DLT). It is important that asset managers do not sit idly by on the subject of innovation within fund administration and a partnership approach is needed with their service providers.

“We’re all busy with what needs to happen today, but you need to take the time to talk to your fund administrator about their innovation, because it will eventually form an important part of your product offering. Changes, such as those possible with DLT, may cannibalize some of the current services offered by fund administrators, but it will open the door to other services.

Asked by Dries about the future of mutual funds, Williams concluded: “There is of course no crystal ball in financial services, but I predict that mutual funds will remain given the protection and the security they provide to investors. However, they will have to evolve and adapt. This will be the challenge for regulators; the need to ensure that regulations and structures remain up to date and continue to meet the needs of investors. The mutual fund as an entity will evolve, but I don’t think it will go away.

Gary C. Lisi