FinIQ-IBS Intelligence explore financial products distribution
By Edil Corneille
With the investment patterns of both retail as well as corporate investors undergoing a tremendous change, financial product issuers and distributors have to look at innovating ways powered by technology. Singapore-based FinIQ in collaboration with IBS Intelligence has published a whitepaper that explicates on the dynamics and factors influencing the distribution of financial products. Existing models have been evaluated and recommendations on alternative technology-powered business models are provided, through the whitepaper.
Presently, investment products distribution is still mostly a commission-based remuneration model. Though technology-enabled channels such as online brokers, investment aggregators, and automated advisory channels are on the rise in being used by investors; banks, insurance companies, and independent financial advisors are the channels that are commonly used by retail investors in ASEAN countries.
The high demand for real-time distribution and a higher level of customisation of financial products cannot be neglected by the financial product distributors. There is a rising sophistication among the retail investors, particularly the mass affluent as they demand structured products in addition to the traditional securities and conventional FX provided. Technology-driven transformation is enabling distributors to meet these demands as well as protect or even increase their share of the business.
Manual and platform channels are in demand for structured products distribution, however, there has been a notable shift from manual channels to platforms, which has been indicated by structured products trading volumes. More standardised products with high potential for automation are typically available to advisors to sell directly through platforms. The platform provides an opportunity to have a single product for an individual client. On the other hand, more complex structures are routed through the manual channels where advisors create a more customised and subscription product. The next leap in the distribution of structured products was the emergence of multi-issuer platforms (MIPs).
Project cost & complexity and legacy infrastructure are the challenges that issuers and distributors face in their technology transformation journey to the electronification and automation of structured products. A new architecture is proposed to make the entire technology stack more efficient. Order Management Systems (OMS) has merged with execution engines to manage the complete lifecycle of trade order and execution. It can be safely assumed that OMS would become all-encompassing, offering seamlessly integrated, multi-asset trading functionality with back-office and risk management capabilities.
The use of the new architecture with OMS acting as the standard interface between back-office, risk management, and execution engine leads to the easier creation of new products, efficient information flow throughout the process, improved risk & compliance, channel optimisation and the improved execution of client orders in relevant markets.
Technologies such as artificial intelligence (AI), machine learning (ML) and the distributed ledger will have a significant impact on distribution in the future as digitisation structures the data on which these technologies thrive. Banks need to be the leader of innovation as they now have to compete with FinTechs too in the financial product distribution value chain. The whitepaper by FinIQ and IBS Intelligence elucidates on the challenges of the technology wave on financial product distributors as well as assesses the role of OMS in the recommended technical architecture. For more insights on the importance of the efficient distribution of financial products, click here.
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