The popularity of single- and multi-dealer platforms in Europe and Asia has yet to be equalled in the Americas. As Europe and Asia move closer to the multi-dealer version, there are obvious benefits, according to Gerhard Meier (pictured), managing director, global head of the Deritrade multi issuer platform at Bank Vontobel, speaking on a panel at the SRP Americas conference in Boston on June 16.
"If there is only one issuer that is reflected in the pricing, and he knows it," said Meier. "That is where the multi-dealer platform comes in.
"There is an opportunity for [multi-dealer platforms] to develop in the US, but the question is how much competition the market wants, and is looking for," said Meier. "When we look at the pricing behaviour [of the seven issuers we have on the Deritrade platform], in the same payoff [and] the same product, we see pricing differentials of 50bp to 100bp. There is no single issuer that is always the best, depending on payoffs [and] underlyings... If pricing is important, you need to have a multi-issuer platform."
The barriers to entry in the US include questions over the appetite that the large distributors have to opening up and bringing in competition, according to Meier. "If you are an issuer and a distributor in the same company, what is more important: your roll margin for your company, or your client offering?" said Meier.
A further obstacle remains the degree to which investors want to buy from a machine. "It still seems that products need to be sold, one human being to another ultimately, for them to be purchased," said Russell Hackmann, president of Axio Financial. "Prior to that, the question is how can you use different pieces of technology to serve as different touch points along the journey of product education, from product consideration to closing. We use emailing, digital advertising... to inform lead scoring."
While the answer could include one platform that hosts all investments, there is little sign that this option is available. "With the large independent broker-dealers and RIA (registered investment adviser) channels, people in those channels are almost overwhelmed by the volume of choices that is being pitched to them," said Hackmann. "There is so much product evolution going on in the product manufacture side, that it is very difficult for the financial advisers to know what to focus on.
"The right person is very interested in someone walking them through the merits, the risks, the advantages [and] disadvantages of the product, and helping them understand the story such that they can explain it to their client," said Hackmann. "There are not too many financial advisers or RIAs who would have the propensity to jump on and price their own products, given the flow of the day for people."
Furthermore, "the product evolution is so rapid, as rates change and different factors in the derivatives market change, it is almost impossible to keep up," said Hackmann. "A variety of using technology and good, old-fashioned human beings, and people travelling around, to which online [education] resources could all be applied. There is more of that to do."
The ultimate objective may be the roboadviser. "It's a huge universe," said Meier. "How do you know what you want? How do you know what is good today?
"Last year, we [introduced] robotechnology to add to the decision support. Normally, the roboadviser replaces the financial adviser, but that's not what we believe. We use the technology to help the financial adviser screen the offering. We are also spending time on the portfolio context: the riskiness and suitability aspect of a product in a client portfolio context.
"We assume regulators will come and may make it mandatory - when selling products - that you have to offer a client the pre-trade portfolio aspect. We started doing that, and I saw a prototype last week. It's a new dimension and the first step is online interaction for primary products; the second will be that the portfolio itself will define the structure of the product. That is the next step."
Hackmann said, "The market is in need of this. Understanding that somehow clients will have to pay for financial advice, tools that look at client situations looking at risk parameters (such as how long you might live) will help clients and advisers, and also help meet incoming regulatory standards."
More technological support is expected to come from the integration of Blockchain, which "could revolutionise the securitisation process and the handling of static data, making it more efficient and take costs out," said Meier. "Different markets have different standards - a global standard would bring a benefit."
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