2016年-FCA英国金融行为监管局_ms15_2_2_annex_4_21页_449kb

Summary of MS15/2.2: Annex 4 - Retail Econometric Analysis

Core Content

This annex of the Asset Management Market Study focuses on the retail econometric analysis of the factors influencing net flows of assets into retail funds. The study aims to assess whether competition in the asset management industry is effective by examining the role of platform best buy lists and third-party ratings in driving investor behavior.

Main Points

1. Fee Structure and Incentives

• Ad valorem fees are the primary fee structure for commercial asset managers, where fees are a fixed percentage of Assets Under Management (AUM).
• This structure incentivizes asset managers to attract and retain assets, as increased AUM leads to higher revenues.
• While good performance can increase AUM, the fee structure does not directly reward performance, so the incentive to perform well is indirect.

2. Drivers of Retail Net Flows

• Performance is a key driver of fund flows, with convexity observed in the relationship between performance and flows. Poor performers see modest outflows, while top performers see large inflows.
• Third-party ratings (e.g., Morningstar ratings) have been shown to have a significant impact on fund flows, independent of performance.
• Charges (front-end and annual) also influence flows. Front-end loads are negatively correlated with inflows, while annual fees may be positively correlated due to increased marketing efforts.

3. Role of Platform Best Buy Lists

• D2C platforms are a major distribution channel for retail investors in the UK, with 32% of non-advised investors using them for their latest fund investment.
• Platforms often highlight best buy lists of funds, which may influence investor decisions.
• The study investigates whether these lists drive net flows and whether they add value for investors.

4. Methodology

• The analysis uses econometric techniques to examine the relationship between fund flows and recommendations.
• The regression model includes:
  • Platform recommendations (from t-1 to t-3)
  • Past performance (as measured by percentile rank)
  • Third-party ratings (Morningstar ratings)
  • Fee structure (percentile rank and fee level)
  • Return volatility
  • Time dummies
• Two measures of net flows are used:
  • Absolute net flows (in GBP)
  • Relative net flows (as a percentage of total net assets from two years prior)

5. Key Findings

• Platform recommendations have a positive and statistically significant impact on fund flows, with each additional recommendation leading to an increase in assets under management.
• The impact is persistent, suggesting that recommendations have a long-term effect on investor behavior.
• Best buy lists are considered to have the potential to drive substantial net flows if investors rely on them for decision-making.
• The study notes that platforms do not publicly disclose their historical best buy lists, which limits the ability of investors to assess their predictive value.

Key Information

• D2C platforms are increasingly important in the UK retail investment market.
• Best buy lists are a key tool used by platforms to guide investors, but their effectiveness and value remain under-researched.
• Morningstar ratings and analyst ratings have been shown to significantly influence fund flows.
• Fee structures also play a role, with front-end loads negatively affecting inflows and annual fees potentially positively affecting them.
• The convex relationship between fund performance and flows implies that top performers attract more inflows than average performers, while poor performers see limited outflows.

Conclusion

The econometric analysis suggests that platform best buy lists have a measurable and statistically significant effect on retail fund flows. This indicates that recommendations by D2C platforms may be an important factor in investor decision-making. However, the study also highlights the need for further research to determine whether these lists add value for retail investors, given that their predictive ability is not transparently disclosed.