With the fund industry seeking more efficient and transparent operations, Clearstream and FundsDLT have turned to technology. Paolo Brignardello, Chief Commercial Officer of FundsDLT explores the intersection of digital tools such as DLT, APIs, cloud computing and data analytics in refining fund distribution and enhancing client experiences.
In the fund distribution chain, each intermediary often performs similar tasks such as identity verification, transaction processing and compliance checks. This results in repeated operations, where the same data is processed multiple times, leading to inefficiencies such as increased operational costs, slower transaction times and higher chances of error. This redundancy not only burdens the system but also increases the overall costs of fund management, impacting all stakeholders.
In today's dynamic funds landscape, efficient distribution is paramount for asset managers and distributors seeking to stay ahead of the curve. As DLT and other emerging technologies come to the fore, the traditional methods of fund distribution are being revolutionised, promising accelerated processes, lower costs and enhanced security.
This shift to modern technology is also being partly propelled by the need to move away from traditional legacy operating systems, which have accumulated over the years. Older systems are being re-evaluated and substituted with modern fintech solutions that streamline operations and reduce these inefficiencies and redundant tasks. This industry-wide digital transformation not only accelerates processes and bolsters security but also has the potential to make funds more accessible for investors.
The transformation is multi-faceted. DLT offers a decentralised and immutable ledger system that has the potential to streamline the entire fund distribution ecosystem. By leveraging DLT, asset managers and distributors can automate various aspects of fund distribution, including transactions, reconciliation and compliance, significantly reducing operational costs, and minimising the risk of errors. Additionally, the transparency and auditability inherent in DLT can foster greater trust among stakeholders, paving the way for more seamless interactions between asset managers and distributors. Combining DLT with Cloud Computing, APIs and data integration collectively empowers both asset managers and distributors. Cloud Computing offers scalability and flexibility, APIs facilitate seamless integration for broader service access, while data integration enables informed decision-making, optimising distribution strategies and enhancing client experiences for both parties.
Also driving transformation are the regulatory demands emphasising investor protection, risk management and transparency that are continuing to shape the industry. These regulatory changes are aligning with heightened investor expectations for better services and greater transparency, setting the stage for significant shifts in operational models. Unfortunately, the current models, characterised by their complexity and costliness, hinder efficient investor experiences, and increase the distribution sector’s vulnerability.
Fund distribution industry digitalisation opportunities and challenges
In the fund distribution chain, both asset managers and distributors are facing challenges that could be substantially mitigated through the adoption of new technology and digitalisation. A primary concern for asset managers is the difficulty in directly understanding investor needs, stemming from the fragmented nature of retail investor data often aggregated at intermediary levels. This fragmentation not only obstructs the creation of investment funds tailored to investor needs but also adds layers of complexity to regulatory compliance efforts, particularly concerning oversight responsibilities. Consequently, this disconnect inhibits the development of funds that truly resonate with investor demands and complicates regulatory compliance.
Driven by objectives such as cost reduction and improved quality, as well as the pursuit of developing closer technical relationships with distributors, asset managers can benefit from increased ability to share data and make better decisions about product development. By embracing new technologies and embracing digitalisation, asset managers can streamline processes and enhance client experiences.
“Developing a closer relationship with distributors to understand needs and better deliver products is paramount for many asset managers in the distribution chain”
Paolo Brignardello, FundsDLT
Distributors, on the other hand, although they have similar goals around digital transformation, operational efficiency and cost reduction face slightly different challenges that impede these objectives, including legacy systems hindering technological adoption, inefficiencies in data management and profitability concerns stemming from service delivery limitations.
Distributors aim to enhance operational efficiency and enrich the investor experience. By embracing digital transformation, they can streamline operations, optimise data management for accurate fund data provision and develop new revenue streams. This shift not only aims to reduce operational costs but also enhances compliance and service delivery, positioning distributors to better meet evolving market demands and regulatory standards.
To sum up, for both asset managers and distributors, costs and practical difficulties in operational efficiency are major obstacles for growth. Asset managers aim to leverage technology and data to forge closer relationships with distributors while navigating regulatory complexities as avenues for improvement. Similarly, fund distributors seek to optimise operations such as investor onboarding, ensure regulatory compliance and foster profitability through collaboration, turning challenges into opportunities to enhance the investor experience.
DLT and emerging technologies can help materialise these opportunities.
Enhancing fund distribution with technology
The integration—within a re-engineered infrastructure and ecosystem—of technologies is redefining efficiency, transparency and operational capabilities.
DLT is at the forefront of these, drastically improving the quality and profitability of fund operations. It serves as the core infrastructure, ensuring superior data control at an individual level and introducing automation through self-validating networks. Smart contracts play a pivotal role in this ecosystem, automating the enforcement of complex business rules, which simplifies transaction processing and enhances operational flexibility, security and speed.
DLT provides unprecedented bilateral transparency across the entire distribution chain. Real-time visibility into transactions and fund movements empowers all stakeholders with immediate access to critical information. Crucially, the ability to facilitate fund tokenisation offers myriad benefits, such as faster settlement cycles, fractional ownership and broadened investor access. These advantages collectively contribute to a more inclusive, efficient and secure investment landscape.
“By enabling asset managers and distributors to harness these technologies, FundsDLT is leading the charge towards a more agile, intelligent and responsive distribution network.”
Paolo Brignardello, FundsDLT.
APIs complement these advancements by promoting interoperability across various actors and platforms, allowing for the creation of new business models. FundsDLT uses a robust ecosystem of APIs, enhancing direct investor access from initial onboarding to the complete investment process while embedding essential regulatory and compliance checks. This integration ensures a frictionless investor journey and enhances the connectivity between asset managers, distributors and investors.
The adoption of cloud technologies spreads these innovations by eliminating the need for extensive infrastructure investments. By deploying cloud-based solutions, firms can focus more on value creation rather than on managing technical infrastructure and low-level operations. Cloud technology, especially when integrated with 'Software as a Service' (SaaS) models, offers ready-to-use software solutions that are crucial for maintaining high standards of resilience and operational flexibility at reasonable costs.
Data and analytics further propel the fund distribution industry forward by providing actionable insights that allow asset managers to tailor services and optimise fund performance. They can be particularly important for distributors, ensuring the provision of accurate fund data to asset managers and buyers, crucial for informed decision-making. FundsDLT integrates these capabilities into its solution inherently, providing seamless access to precise and timely data. This integration facilitates better market analysis, improved fund management and a more personalised investor experience, aligning with the digital transformation goals of the industry.
The convergence of DLT, APIs, cloud computing and data on platforms such as created by FundsDLT creates a comprehensive infrastructure that reduces complexity while enhancing the overall client experience. FundsDLT enables Clearstream Fund Services to provide a more agile, intelligent, and responsive distribution chain for asset managers and distributors. Furthermore, they create new avenues for data transparency and enable the exploration of new business models, providing asset managers and distributors with tools to access wider markets and offer customised, responsive services that meet evolving investor demands. FundsDLT powers Clearstream Fund Services to the next tech level.
This transformative shift sets a forward-thinking standard for the entire industry, ensuring continued innovation and excellence in fund distribution.
