Collaborate to know your fund distributors better, and less painfully

Distributor due diligence is, frankly, a thankless task for investment managers who send questionnaires out and the distributors who are asked to complete them. But due diligence is a regulatory requirement before both sides enter a relationship, and on a regular ongoing basis. Standardising questionnaires and their transmission between investment managers and distributors is efficient for everyone involved. Initial questionnaires are simpler to complete and return and updates can be more frequent, leading to better compliance with the law.

Typically, we find investment managers send out distributor questionnaires infrequently to distributors they assume are low risk. But everyone uses a different format, whether Word, Excel or PDF, and has a different set of questions. Distributors receive them by e-mail, review, circulate and return them. That’s the theory, at least. In practice many go unanswered because of the burden of what is often a highly inefficient process placed on all parties.

Asset management firms in Europe may work with anything from five to 1,500 distributors, from one-man-band independent advisers to the largest banks and online platforms. The due diligence process can require significant resources and it is no surprise that questionnaires get lost in the system or that answers are often of low quality.

At ume, we agree with you: the whole process could be much better. Cost-effective and efficient regulatory compliance processes can be a competitive advantage. A reduced need for human time and effort is good for the bottom line, and ongoing compliance reduces the risk of reputational damage and regulatory penalties. And a quicker distributor due diligence process can also speed marketing efforts and the flow of assets into your funds.

We’ve also built a digital platform to handle the questionnaires, doing away with bottlenecks like e-mail and incompatible formats. This turns a highly laborious task for distributors into a smooth continuous updating process. On both sides, the workload is reduced and maintaining due diligence compliance becomes an easier ongoing process. And because data is standardised, it is easier to compare one distributor with another.

The algorithms underlying the platform also continuously re-evaluate the data whenever any distributor updates their information and automatically adjusts the risk assessment that fund groups receive.

Better quality, more regular information makes it easier to ascertain on an ongoing basis whether a distributor is fit and proper, and the right choice for an asset manager. The process also substantially reduces the resources required and ensures more responsive compliance than the ad hoc approach of the past, as well as ensuring much greater transparency. At company level, boards and management committees can exercise their control obligations much more effectively.

If you would like to know your distributors better we’re ready to talk to you.