Benefiting from the network effect
Competition is the lifeblood of business – but not always; sometimes it does not make sense. It can often lead to better outcomes when natural competitors work together for their collective benefit. That applies to the task of conducting distributor due diligence, where sharing the burden of deciding what to ask distributors makes everyone a winner.
So far in this series on Know Your Distributor, we’ve looked at the time, cost, quality and resource benefits of harmonising distributor due diligence to ensure the right questions are asked – once – of the right people to ensure ongoing compliance.
Another aspect of the ume platform and process encourages our investment management clients to share their insights and expertise that has nothing to do with the competitive advantage they may enjoy in delivering returns for their investors.
By sharing their understanding or interpretation of regulatory requirements and
their experience of compliance, all users of the platform access a common store of knowledge of best practice.
Our collaborative approach brings fund groups together to reach a consensus on what questions distributors should be asked in order to meet asset managers’ due diligence requirements. The process involves collective decision-making and sharing of insights, allowing every player to improve the quality of their compliance. There is a real sense of working together to do things better.
In effect, ume clients use crowdsourcing to determine the most effective distributor questionnaire by agreeing on the required due diligence standards and the information that must be obtained from their intermediaries.
The curation process allows the platform’s users to assemble the most important questions to ask their distributors, providing a more carefully calibrated questionnaire for each distributor, depending on their particular characteristics such as size or cross-border reach. The process is so successful because participants understand the benefits it can deliver both to themselves and other asset managers.
When industry peers agree on the approach to take and quality threshold
expectations, distributors know they must respond fully and with thought, because they are the product of an industry consensus. Answering precise questions just once is easier, quicker and leads to richer responses when distributors know they need to complete a single questionnaire in an online format that they can easily follow, rather than a succession of queries from each asset manager’s own, different list of questions.
The network approach facilitates follow-up activity. Investment managers can query answers that don’t seem quite right, whether an authorisation issue or details of money laundering and financing of terrorism controls. The follow-up responses are also shared immediately across the network. Often distributors will respond by reviewing and improving their own processes or structures, reducing the distribution risk for asset managers further and enhancing client protection against mis-selling – as well as shielding fund firms from the risk of reputational damage.
Our collaborative approach is a robust and tangible example of competitors working together for their common benefit. If you’d like to know how this network effect can help your own business, that of your distributors – and of your peers as well – we’d like to talk to you.