Andy Clarke, head of UK distribution at DWS Investments, believes clients need diversified solutions that tap new markets and have more applications for advisers
When it comes to new launches it is far too often the case that the investment management industry focuses on investment strategy while at the same time getting the package of benefits all wrong. This is a crying shame for advisers, because often it is understanding the applications for a fund and building additional features into financial products that will determine the difference between just another fund and an original investment solution. Unfortunately for advisers, getting it wrong can destroy a potentially attractive sale, which is all they need in a challenging environment.
At DWS Investments, we believe that to be a true partner having the investment expertise is really just the starting point, it might get us into a choice set, but it's not the be all and end all of why we should launch - or indeed why advisers should recommend - a fund. After all, there is plenty of competition out there.
Originality increases the attractiveness of a solution. There is nothing that can increase the marketability of an investment more than leading the industry with a brand new message. However, more often than not, the choice between two investments is often made on the combination of soft factors surrounding a financial product, such as pricing, tax status, access on preferred platforms, marketing support, the appropriateness of minimum investments and scale-ability.
Launching funds for the right reasons
At DWS Investments we abide by some simple rules. We never launch me-too funds into already crowded sectors and we always seek to launch funds for investment reasons rather than into the latest fashion or fad. Not only that, we've settled into a pattern of pre-launching our investment solutions by around six months, so we can pick up on all of the soft issues that we must address to suit our different client groups. The solutions we come up with must directly address the product applications for advice businesses if they are to be brought front of mind.
More products with broad appeal
Our industry needs more products that have broad appeal to suit the strategies of advice businesses. We don't need more strategies, we need more diversified solutions that tap new markets and have more applications for advisers. What's more, we also need more providers who are prepared to put their money where their mouth is and support the advice market by spending the money to develop and promote such solutions.
The story behind DWS RateBuster
DWS RateBuster was our first big idea for 2005, the first true higher return strategy in S&P/Micropal's UK Money Market sector. The investment itself has its merits and is certainly original, but we still spent over six months on pre-launch sales and marketing to make sure that we were hitting all of our prospective client groups with suitable messages. We also needed time to consult our supporters on the features that would mould the product for their businesses, providing a unique package of benefits for advisers to discuss with clients.
Over this time we adapted both the product design and the marketing messages substantially in order to incorporate feedback from our clients. That meant multiple share classes with different tax status, it meant developing DWS RateBuster Rollover to overcome RateBuster's closed periods and it required the development of a unique suite of literature and easy-to-understand sales material to make sure we got the message across in the way we knew would best suit our partners' point of sale needs.
This effort was also reflected in the underlying business mix. As you can see from the pie chart, the fund has attracted everything from charities to self-invested pensions to trustees and corporate clients.
Stealing assets from other providers has become second nature for asset managers to the point when no one really tries to expand the market size anymore. This creates winners and losers among asset managers, but more importantly, it's terrible news for advisers because it stifles creativity and the sort of developments that present opportunities for the advice market. Significantly for our business, we forged more new partnerships as a result of our latest launch than we have done as the result of any other promotional activity since our re-brand in September 2002.
Of course, it helps that the fund can also be held in a cash Isa. This is why after feedback from clients we decided that the first open offer period would straddle two tax years, doubling an adviser's opportunity to secure that £3,000 annual subscription.
Products which take tax into account
We are also thinking about other ways in which to help our markets from a tax perspective - for example, by making a gross share class available for the fund. We've started to target two types of client that may represent new markets for many advisers.
The first is trustee investment business, where it can be extremely difficult to encourage an allocation away from cash. The second is corporate business. Many advisers have corporate clients who have plenty of cash that they are not using within their businesses but which contribute minimal investment returns at each year end. These corporate clients may well be prepared to accept alternative propositions if they can retain a high degree of capital security.
In terms of new options for advisers, 'lifestyling' has to be up there on the list. We need more options for drawdown. If a client has accrued a significant pension pot but will be accessing it over a number of years in order to ensure their money can stay invested for as long as possible, there should be more opportunity to generate investment returns without putting your nest egg at risk.
Looking at the costs
As well as being tax efficient, we've tried to be relatively streamlined from a charges perspective compared to other investments. There is no initial charge eating into the investment from day one. In addition, we kept our annual management charge down to just 1.0%.
Tempting as it was to go for a higher fee, we realised that expanding the total market size meant achieving penetration and attracting new accounts rather than making immediate profits. Our aim was to cover our costs, which we have done with the first tranche. However, this is a low margin solution for us. The benefits for our business are broader than revenue generation.
Success or failure in the advice market also comes down to general exposure. We realise we can't just offer our funds direct. In a depolarised world it's important that we offer our advisers choice regarding how they want to do business. To that end, it's critical for us to be well-represented in the multi-manager world and among the preferred life company partners of advisers. We would also see it as a great shame if advisers couldn't access our solutions through the supermarkets.
Advisers need good administration support and to keep their costs down by cutting their points of contact. If that means that we as asset managers switch to doing business through platforms, then so be it. Competing with other asset managers for a static pool of money can only ever be an interim game. Ultimately, as an industry we will all suffer if we fail to provide opportunities for advisers that help expand the total size of the market.
Up to six months' worth of interest earned by the money market/debt investments within DWS RateBuster will be at risk at any given time. Gains from previous six-month periods are incorporated as part of the capital security pledge. While investors' capital is secure at the predefined dealing days, the income from the Fund may fluctuate and is not guaranteed. There may be no income in a given six-month period. DWS RateBuster relies on the counterparty (Deutsche Bank) to the swap agreement to honour its capital security pledge. As a result the capital is not guaranteed. Capital is also at risk if one or more of the financial institutions that issue the investments held by the money market/debt portfolio fail to pay back the capital and/or the interest falling due. For these reasons the Fund does not offer the security of capital which is afforded to a building society account. The capital security pledge made by the Fund applies to three specific dealing days over rolling six month periods as set out in the prospectus. Investors who choose to take advantage of the access feature outside of these periods will do so at a price which reflects their fair proportion of any gains or losses made by DWS RateBuster. There may be uncertainty as to the fair value of the Managed Account because of potentially high volatility in its underlying assets. This may affect the share price.
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