Managers take advantage of the advice to place their own investment funds

Discretionary portfolio management and financial advice have become the main ways to distribute investment funds in Spain, to the point that between both business segments, the managers already reach a share of 66.4%, according to the latest data of Inverco, corresponding to the third quarter. The rest is the direct sale of collective investment products, normally the most conservative funds such as monetary funds, those with a profitability objective or guaranteed ones, apart from those that a private investor can buy through a platform or in their bank for interest. own.

European regulations, which promote the sale of funds with clean classes, that is, without setbacks on the part of the management fee for the distributor, have driven the growth of discretionary portfolio management in recent years, where the client delegates the investment decisions in a firm that, based on its risk profile, assigns assets and invests in the funds it considers most appropriate, whose commissions the investor has to pay, in addition to the cost of managing said portfolio.

And this is where managers have found a way to generate recurring income, since 67% of the Spanish funds that are distributed through advice and portfolio management are from their own range. That is to say, the firms not only earn from the cost of advice or portfolio management but also from the fund management commissions. It must be taken into account that Inverco does not differentiate between independent and non-independent advice, where firms inform investors of possible setbacks in the sale of funds that may have repercussions in their favor.

If figures are put to these percentages, of the 255,681 million euros that Spanish funds accumulate, 238,915 million are in products from the managers’ own rangeand of these, 98,332 million are distributed through advice and 61,533 million through portfolio management.

These asset volumes are reduced when it comes to Spanish funds from third firms, since they only manage 16,766 million, of which almost 9,800 million are sold with advice and only 820 million through discretionary management.

If international funds from Spanish management companies are considered, the volume of assets in products from third-party firms is higher than in their own, although the latter continue to prevail in percentage terms: 92% compared to 64%. In fact, the effect of direct sales is noticeable in the international funds of third firms, since in volume they practically equal the distribution through advice, around 30,000 million euros.

Through portfolio management and advice, managers have achieved better build investor loyalty by instilling in them the need to have a longer investment time horizon than what they achieved with mere product placement, even among those with a conservative profile. But along the way they manage to distribute their own funds, regardless of the revaluation result they obtain.

Brussels pressure

Firms usually claim that they only look for third-party products in those asset classes where they do not have the necessary background to manage them on their own, where they usually turn to international managers.

The new European regulations included in the Retail Investment Strategy (RIS) is going to introduce an additional factor of pressure on firms in the distribution of funds, since the text approved by the European Parliament in April included a series of amendments that prohibited retrocessions except if carried out through advice.

With the elections being held in May, we will have to wait until the first half of next year for the final vote on the text, which must first go through the European Commission again. But no one doubts that the end of retrocessions is getting closer. Hence the push for distribution through independent advice.

Said advice will be conditioned by what the regulations call value for moneywhere firms will have to justify, as the name suggests, the value of the recommended investments both by profitability and cost. And this is where the managers’ own range of products will begin to compete with those of third-party firms in a more decisive way and, above all, with passive management products.

A recent study presented by the consulting firm FinReg warns that managers should have “models that allow projecting cost sensitivity analysis and the benefit that the products in their catalogs offer to investors and define the general lines that will govern their governance in this sense in the future”, and highlighted “the very relevant impacts both on the distribution models and on the factory catalogs of product” that the regulations may entail, at the expense of whatever the final text of the RIS is.

“The sector would be wrong not to accelerate strategic reflections on this matter, since the regulatory trend is clear,” the study warns. And in this matter the CNMV has shown itself in favor of following the theses that come from Brussels regarding cost reduction and competitive product offerings.