How do you see the future?

1. How do you see the future? Magnus Spence Director of European ResearchFinancial Research Corporation (FRC)

2. Objective • Ask both Distributors and Manufacturers to predict the future of the fund industry in Europe • Measure the differences that emerge • Use these differences as the basis for further discussion between Distributors and Manufacturers: what are the implications of these differences? A project created jointly by Richmond Events and Financial Research Corporation

3. The survey

4. Conclusions: The differences

5. Conclusions: Some initial implications

6. 1. Products What type of fund products do you think will be in greatest demand with your clients in five years time? Please rank the following from most popular to least popular Distributors' responses Most Popular Least Popular

7. 1. Products /2 What type of fund products do you think will be in greatest demand with your clients in five years time? Please rank the following from most popular to least popular Distributors' and manufacturers' responses Most Popular Least Popular

8. Cash Property Equities Bonds 1% 5% 28% 41% 21% 4% 1% 5% 4% 16% 16% 40% 16% 3% 2% 1% 5% 9% 11% 50% 16% 6% 2% 2% 10% 29% 21% 28% 8% 1% 1% 0% 50% 100% No change 2. Asset classes Assuming modest growth in markets over the next five years, which asset classes will grow and fall in terms of popularity amongst buyers of funds in your country? Distributors' Responses Non IFAs: Less positive about equity More positive about Property Germany - positive about equity Switzerland-positive about bonds UK - positive about property -76% or more -26% or more to -50% 26% to 50% 76% or more -51% or more to -75% -1% or more to -25% 1% or more to 25% 51% or more to 75%

9. Cash Property Equities Bonds 0% 50% 100% No change 2. Asset classes /2 Assuming modest growth in markets over the next five years, which asset classes will grow and fall in terms of popularity amongst buyers of funds in your country? Manufacturers' Responses 1% 21% 4% 55% 11% 7% 8% 17% 18% 15% 40% 1% 10% 3% 19% 19% 49% 1% 15% 13% 38% 8% 23% 1% -76% or more -26% or more to -50% 26% to 50% 76% or more -51% or more to -75% -1% or more to -25% 1% or more to 25% 51% or more to 75%

10. Cash Property Equities Bonds Cash Property Equities Bonds 1% 5% 28% 41% 21% 4% 1% 5% 4% 16% 16% 40% 16% 3% 2% 1% 5% 9% 11% 50% 16% 6% 2% 2% 10% 29% 21% 28% 8% 1% 1% 0% 0% 50% 50% 100% 100% No change 2. Asset classes /3 Assuming modest growth in markets over the next five years, which asset classes will grow and fall in terms of popularity amongst buyers of funds in your country? Distributors' Responses Manufacturers' Responses 1% 21% 4% 55% 11% 7% 8% 17% 18% 15% 40% 1% 10% 3% 19% 19% 49% 1% 15% 13% 38% 8% 23% 1% Sample size 109 Sample size 71 -76% or more -26% or more to -50% 26% to 50% 76% or more -51% or more to -75% -1% or more to -25% 1% or more to 25% 51% or more to 75%

11. 100% 12% 55% 50% Grow significantly Grow somewhat 16% No change Switzerland - most positive about funds Little difference by area of activity of firms Fall somewhat 15% Fall significantly 2% 0% 3. Competing products Funds have to compete with other savings and investment vehicles for their share of the investors' available capital. Will that share grow or fall in the next 5 years? Distributors' responses Sample size 109

12. 3. Competing products /2 What will cause any change away from Funds? • Fund lack of appeal Bad Performance, high cost, lack of tax optimisation Front end fees need to go, and we need more transparent charging structures. Significant education of private clients would be needed to help the fund industry grow significantly. There are too many funds • Competitive products more attractive Competition with structured products & hedge funds   I'd think an increasing number of hedge fund vehicles will cause traditional mutual fund vehicles to diminish in popularity Distributors' responses

13. 3. Competing products /3 What will cause any change in favour of Funds? • Diversification Some clients realize they should no longer be investing directly into shares but in Funds Scandals like Parmalat have taught that it's important to diversify your assets • Product Features I select CTA funds and Funds of Funds which have been able to achieve positive results in every economic environment Since funds have become much more varied in their style and structure;i.e. Funds of Funds and Multi manager approaches Distributors' responses

14. 100% 11% 12% 55% 63% 50% Grow significantly Grow somewhat 16% No change 16% Fall somewhat 15% Fall significantly 2% 10% 0% Sample size 71 Sample size 109 3. Competing products /4 Funds have to compete with other savings and investment vehicles for their share of the investor's available capital. Will that share grow or fall in the next 5 years? Distributors' responses Manufacturers' responses

15. 4. Advice provision It is often said that advice must be given to end-investors. In five years time who will be giving that advice? Please select all that apply Distributors' responses 100% 90% 82% 80% IFAs: Distributors Non IFAs: More emphasis on manufacturers Germany: Distributors UK: Manufacturers 70% 60% 50% 40% 34% 30% 23% 17% 20% 12% 10% 0% Distributors Manufacturers Investors Government / regulator Other Sample size 109

16. 4. Advice provision /2 It is often said that advice must be given to end-investors. In five years time who will be giving that advice? Please select all that apply Distributors' and manufacturers' responses 97% 100% 90% 82% 80% Distributors 70% Manufacturers 60% 48% 50% 34% 40% 30% 23% 23% 17% 20% 13% 13% 12% 10% 0% Distributors Manufacturers Investors Government / regulator Other Dist: Sample size 109 Man: Sample size 77

17. 5. Distributors There are currently several types of distributors of funds, each offering different services to end investors. Please rank the following in terms of how dominant they will be in five years time (from most dominant to least dominant.) Distributors' responses Most Popular Least Popular

18. 5. Distributors /2 There are currently several types of distributors of funds, each offering different services to end investors. Please rank the following in terms of how dominant they will be in five years time (from most dominant to least dominant.) Distributors' and manufacturers' responses Most Popular Least Popular

19. 6. Rebates/ retrocession/ commission/ trail How much do you think that the rewards earned by distributors of funds will change over the next five years? Distributors' responses 3% 100% 26% Grow significantly Grow somewhat 15% No change Fall somewhat 50% Fall significantly 48% Non IFAs: Think it will fall more Germany: Think it will rise Switz. UK: Think it will fall 9% 0% Rewards Sample size 109

20. 6. Rebates/ retrocession/ commission/ trail /2 How much do you think that the rewards earned by distributors of funds will change over the next five years? Distributors' responses Manufacturers' responses 1% 3% 100% 23% 26% Grow significantly 15% Grow somewhat 34% No change 50% Fall somewhat Fall significantly 48% 41% 9% 0% Sample size 73 Sample size 109

21. Grow significantly Grow somewhat No change Fall somewhat Fall significantly 7. Number of fund groups Do you believe that in five years time, the total number of manufacturers of funds offering their products in your country (both on a third party basis or through their own in-house outlets) will grow or fall? Distributors' responses 100% 4% 46% 50% 9% By area of activity: no difference Germany: Think it will stay same Switzerland: Think it will grow UK: Think it will fall 35% 6% 0% Funds Sample size 109

22. Grow significantly Grow somewhat No change Fall somewhat Fall significantly 7. Number of fund groups /2 Do you believe that in five years time, the total number of manufacturers of funds offering their products in your country (both on a third party basis or through their own in-house outlets) will grow or fall? Distributors' responses Manufacturers' responses 3% 100% 4% 31% 46% 24% 50% 9% 39% 35% 6% 4% 0% Sample size 109 Sample size 75

23. 8. Dominant suppliers Which suppliers do you think will dominate your market in five years time? Distributors' responses 20% 19% 18% 16% 14% 12% 9% 10% 8% 7% 6% 6% 5% 4% 4% 4% 4% 4% 4% 2% 0% Fidelity UBS DWS Raiffeisen Credit Suisse Banks (unspecified) J P Morgan Nordea Franklin Templeton Merrill Lynch Sample size 109

24. 8. Dominant suppliers /2 Other suppliers mentioned more than once Distributors' responses Deka Dr Peters HSBC Invesco Perpetual Irish Life Jupiter MAN Morgan Stanley New Star Abbey Allianz Artemis Aspecta AVIVA AXA Bank Austria Capital Invest Carmignac Gestion Credit RAS Prudential San Paolo SEB Skandia Societe Generale Sparinvest Swisscanto Unicredito Union Investment Sample size 109

25. 8. Dominant suppliers /3 Which suppliers do you think will dominate your market in five years time? 40% Distributors' and Manufacturers' responses 35% 30% 25% 19% 20% 15% 11% 9% 9% 10% 8% 8% 7% 6% 5% 5% 4% 4% 4% 4% 4% 4% 4% 4% 4% 5% 0% Merrill Lynch Banks (unspecified) J P Morgan Franklin Templeton Fidelity UBS DWS Raiffeisen Credit Suisse Nordea Invesco Schroders Skandia New Star Man Group Sample sizes: Dist: 109 Man: 77

26. Grow significantly Grow somewhat No change Fall somewhat Fall significantly 9. Management fees Manufacturers' earnings from equity funds have been stable in recent years. How much, if at all, do you think this will change in the next five years? Distributors' responses 100% 18% 31% 50% 47% By area of activity: no difference Germany: Think it will rise Switzerland / UK: Think it will fall 4% 0% Funds Sample size 109

27. 9. Management fees /2 Reasons to change Distributors' responses Competition will drive earnings down • Competition and availability of a large number of identical funds • In all economic segments competition is growing and new more competitive markets will be open to the investor • Clients are becoming more sophisticated financially and more aware that they can negotiate charges, fees & commissions • Manufacturer will fight for their share of the cake, giving more to the distributors •  Increased competition, more sophisticated clients

28. 9. Management fees /3 Reasons to change Distributors' responses Need for transparency • More transparency • The market ask for more transparency • The industry is forced to work with more transparency within the coming years • Charges are under the spotlight including "hidden" charges

29. Grow significantly Grow somewhat No change Fall somewhat Fall significantly 9. Management fees /3 Manufacturers' earnings from equity funds have been stable in recent years. How much, if at all, do you think this will change in the next five years? Distributors' responses Manufacturers' responses 1% 100% 13% 18% 31% 40% 50% 47% 44% 4% 1% 0% Sample size 109 Sample size 75

30. 10. Investors Thinking of the end investors, which types of people do you think will be the most actively interested in funds in your country in five years' time? Please select one per group. Distributors' responses Manufacturers' responses 100% 100% 86% Gender Gender 58% 42% 50% 50% 14% 0% 0% Male Female Male Female 100% 100% 86% 67% Investable assets Investable assets 50% 47% 50% 42% 26% 2% 5% 11% 0% 0% * Euros * Euros 0% <100,000 100,000 - 1,000,000 1,000,000 - 2,000,000 >2,000,000 <100,000 100,000 - 1,000,000 1,000,000 - 2,000,000 >2,000,000

31. Under 35 35 to 55 56 to 65 Over 65 10. Investors /2 Thinking of the end investors, which types of people do you think will be the most actively interested in funds in your country in five years' time? Please select one per group. Distributors' responses Manufacturers' responses 100% 100% Age Group Age Group 74% 66% 50% 50% 28% 22% 5% 3% 1% 1% 0% 0% Under 35 35 to 55 56 to 65 Over 65 100% 100% Profession Profession 71% 51% 50% 50% 42% 15% 15% 6% 0% 0% Public sector Private sector - Professionals Private sector - Other Public sector Private sector - Professionals Private sector - Other

32. Grow significantly Grow somewhat No change Fall somewhat Fall significantly 11. Open architecture Funds are increasingly being offered in an open/guided architecture way, that is where funds from different manufacturers are offered alongside the distributor's own funds. Do you think the average number of suppliers being offered in this way will rise or fall? Distributors' responses 100% 16% Grow significantly Grow somewhat 50% No change 50% Fall somewhat Fall significantly 19% Non IFAs think it will fall more Germany / Switzerland / UK: think it will grow most 15% 2% 0% Funds Sample size 109

33. Grow significantly Grow somewhat No change Fall somewhat Fall significantly 11. Open architecture /2 Funds are increasingly being offered in an open/guided architecture way, that is where funds from different manufacturers are offered alongside the distributor's own funds. Do you think the average number of suppliers being offered in this way will rise or fall? Distributors' responses Manufacturers' responses 100% 16% 21% 50% 52% 50% 19% 12% 15% 14% 2% 1% 0% Sample size 109 Sample size 73

34. No change 12. Stock markets Obviously no one knows what will happen to markets. But what do you currently think is most likely to happen to the following equity markets in the next five years? Sample size 109 Distributors' responses Nikkei Dow Jones Your stock market 1% 4% 6% 51% 30% 6% 2% Non IFAs more positive Switz/UK: more positive 4% 10% 14% 46% 23% 4% 6% 1% 6% 57% 28% 4% 0% 50% 100% -76% or more -26% or more to -50% 26% to 50% 76% or more -51% or more to -75% -1% or more to -25% 1% or more to 25% 51% or more to 75%

35. No change 12. Stock markets /2 Obviously no one knows what will happen to markets. But what do you currently think is most likely to happen to the following equity markets in the next five years? Sample size 73 Manufacturers' responses Nikkei Dow Jones Your stock market 1% 1% 25% 15% 45% 7% 4% 1% 3% 21% 18% 51% 1% 4% 19% 3% 4% 19% 51% 3% 0% 50% 100% -76% or more -26% or more to -50% 26% to 50% 76% or more -51% or more to -75% -1% or more to -25% 1% or more to 25% 51% or more to 75%

36. 13. Areas of Concern Please rank the following in terms of how much of a current concern they are to your company (with 1 being of most concern and 11 of least concern): Distributors' responses Most Popular Least Popular

37. 13. Areas of Concern /2 Please rank the following in terms of how much of a current concern they are to your company (with 1 being of most concern and 11 of least concern): Distributors' and Manufacturers responses Most Popular Least Popular

38. Conclusions: Distributors Growth: European fund distributors are optimistic: they see a future of steadily growing stock markets, and an environment where funds are in increasing demand Products:Structured/guarantee, or Multi-Manager or Hedge, are likely to be particularly popular types of product, with Equity the strongest asset class. These new products are winning share, but there is little evidence that Long-Only Funds will be "dead" in 5 years Fees: They think that manufacturers will suffer falling fee income because of competition among manufacturers, but predict that they will also have to lose some of their own commissions from funds Suppliers:They think that Open Architecture will grow. They are quite happy that there are a lot of fund manufacturers, and see no reason for consolidation. They predict Fidelity will continue to dominate among the many manufacturers Concerns:European fund distributors most pressing concern is the need to focus on increasing their own customers' satisfaction. They see some limited ongoing competition to their own businesses from banks Clients:In future European fund distributors will want to retain ownership of their client relationship: advice when it comes to funds will come from them not manufacturers. They predict that customers buying funds in five years will be wealthy middle aged male professionals

39. Conclusions: Manufacturers Growth: European fund manufacturers are very optimistic: they see a future of strong growth in stock markets, and an environment where funds are in increasing demand Products: Funds of Funds and Multi-Manager are likely to be particularly popular types of product, and Long-Only Funds are also alive and kicking. Equity and Property are likely to grow strongly as the most popular asset classes Fees: They think that their own income is not under significant threat, but they are not optimistic about being able to reduce the share currently taken by distributors Suppliers: They think that Open Architecture will grow. The majority see no major drive towards consolidation of fund manufacturers. They predict Fidelity will completely dominate among the many manufacturers Concerns:European fund manufacturers most pressing concern is the need to grow sales, which comes ahead of any focus on increasing their own customers' satisfaction. They recognise that they will have to take more responsibility for educating the end investor Clients:They think the most important distributors of the future are the Banks, IFAs and Private Banks. They predict that end investors buying funds in five years will be wealthy middle aged male and female professionals

40. Mercedes 13% No Category 11% BMW 10% Audi 8% Old Car 8% Aston Martin 6% Range Rover 6% Lexus 3% Maserati 3% Rolls 3% Volvo 3% DCV 2% Ferrari 2% Mini 2% Saab 2% Smart 2% VW 2% Alfa Romeo 1% 1% Bentley Jaguar 1% Jeep 1% Morgan 1% Porsche 1% 1% Renault Toyota 1% Lotus 1% 14. If I was a car... Old fashioned, reliable, sophisticated, sleek, conservative, efficient, safe, comfortable, exclusive, careful, value for money Quality, distinguished, fast (if necessary), trad/modern, innovative, reliable, stylish, performance, power (quietly), sporty Understated, surefooted, innovative, can change, not aggressive, technical, advanced, safe Solid, reliable, elegance Expensive, well dressed, striving to be the best, high quality, reliable, safe Adaptable, safe, steady, will go through any shit, secure in all conditions, adventurous explorer Distributors' Responses

41. 14. If I was a car... Distributors' and Manufacturers Responses Distributors Manufacturers Vw Mini TR4 Dcv SUV Audi Rolls Bmw Jeep Saab Volvo Lexus Smart Honda Lancia Bristol Rover Jaguar Ferrari Toyota Morgan Renault Old Car Bentley Bentley Porsche Maserati Vauxhall Mercedes Motorbike Alfa Romeo Aston Martin No Category Range Rover Pagani Zonda

42. Fieldwork dates: 2005 Wednesday 30th March and closed Monday 11th April Sample: 2005 PIMS International Delegates 2005 PIMS International Invitees An online questionnaire was sent via email to a sample of 2511 and 109 (4%) took part in the questionnaire online All respondents will receive a copy of thefindings Fieldwork dates: 2005 Thursday 4th August and closed Friday 19th August Sample: 2005 PIMS International Delegates 2005 PIMS International Invitees Administration: an online questionnaire was sent via email to a sample of 1193 and 30 (3%) took part in the questionnaire; a further 44 responses were added from a previous study All respondents will receive a copy of the findings Survey methods Distributors' responses Manufacturers' responses

43. Survey methods - Survey context Stock market conditions at time of Fieldwork (FTSE 100) Survey period: Distributors Manufacturers

44. Survey methods - Country of operation /1 Main country of operation of respondents Distributors' 16% 15% 14% 13% 12% 10% 10% 9% 8% 8% 6% 6% 6% 4% 4% 4% 2% 0% Switzerland UK Germany Belgium Austria Italy Spain Sweden France Sample size 109

45. Survey methods - Country of operation /2 Main country of operation of respondents Manufacturers Licensed to operate Keen to expand 120% 100% 100% 100% 100% 100% 97% 96% 100% 95% 93% 92% 92% 92% 92% 90% 89% 88% 88% 88% 87% 86% 86% 85% 83% 83% 81% 79% 77% 80% 60% 40% 20% 0% UK Italy Malta Other Spain Latvia Poland Cyprus Austria France Sweden Greece Finland Estonia Ireland Belgium Hungary Portugal Germany Lithuania Slovenia Denmark Slovakia Switzerland Netherlands Luxembourg Czech Republic Sample size - all to small to be statistically significant

46. Survey methods - Area of activity /1 Main area of activity of respondents (could select more than one) Distributors' 50% 43% 45% 40% 35% 29% 28% 30% 25% 21% 20% 16% 15% 14% 14% 15% 13% 10% 5% 0% IFA Discretionary Wealth Private bank Independent Family/ Fund of funds Insurance Trust company portfolio planner asset manager private wealth manager broker manager office Sample size 109

47. Survey methods - Area of activity /2 Main area of activity of respondents (could select more than one) Manufacturers 100% 87% 90% 80% 70% 60% 50% 40% 30% 23% 20% 13% 13% 13% 10% 10% 3% 3% 0% Investment Life Banking Service Pensions Healthcare Tax Mitigation Other provider Sample size 31 * note base is too small to be statistically significant