Cerulli sees opportunity for AMs in French tax changes

Regulatory reforms and fiscal regime changes are set to make France an increasingly attractive market for cross border asset managers, according to Cerulli Associates’ latest report Asset management in France 2018:The keys to success in a challenging market.

The report attributes the shift to a number of factors. For example, traditional targets of long term savings, the Livret A and livret développement durable are delivering inflation adjusted return of just 0.5%, which makes other forms of savings more attractive. The government has introduced fiscal measures, including a 30% flat tax on capital gains, dividends and interest and reduced wealth tax on non-property investments.

In terms of what has historically been a tough distribution network to enter, Cerulli suggests that local independent financial advisers are looking for less well known managers, to help boost their own claims of adding value to clients’ portfolios through fund selection.

Evidence of the buoyancy of the local mareket comes from net sales figures of €22bn in 2017, which “were much higher than the previous two years combined.”

“The momentum continued well into 2018: the first quarter of the year saw net sales of more than €7 billion,” Cerulli’s report stated.

Aldrin Boraine, a senior analyst on Cerulli’s European retail research team and lead author of the report, added: “Although the French market’s structural challenges—the high market share of money market funds, the high market share of introvert institutional business, the small IFA market—remain, Cerulli believes that opportunities exist for foreign asset managers. In particular, the opportunity offered by French funds of funds will continue growing significantly. In other countries, sub-advisory business is benefiting more, but in France funds of funds are more popular.”

“There are a number of reasons for the growth in the French market. For example, the local economy has been doing well, quantitative easing has been increasing money supply, and people have been waking up to the fact that their existing pension pots are not enough to preserve their lifestyle through retirement. And, of course, interest rates have been low for years.”

Among other key findings of the report are:

  • Cerulli’s analysis of European managers’ expectations for the growth of environmental, social, and governance (ESG) fund assets in 2018 shows that France is one of the most dynamic markets in Europe. Almost half (45%) of the managers we surveyed predicted rapid growth in demand for ESG fund assets in France. Of the seven socially responsible investment strategies identified by the European Sustainable Investment Forum, French investors favor ESG integration and sustainability-themed funds.
  • In recent times, money market fund (MMF) returns in France have been as weak as those in other parts of the world. The European Central Bank has
    reduced interest rates to record lows: in 2016, it cut the deposit rate to -0.4% and it recently indicated it would make no further changes until well into 2019 at the earliest. Such rates are inevitably reflected in MMF returns. The Natixis Cash Euribor fund, for example, returned -0.31% in the year to May 2018. Investors are used to the idea of enduring some short-term pain, but with this fund the pain has extended into the medium term.
  • In France, as elsewhere in Europe, traditional advisers’ control of distribution channels is a significant hurdle for robo-advisers seeking to promote their services and attract new clients. However, distributors seem to be changing their minds about robo-advice and are increasingly looking for strategic partnerships. More than 57% of the respondents to Cerulli’s recent cross-border market survey identified banks as the distributors that they expect to benefit most from the growth of robo-advice—by adopting robo-advice technology and services.
  • The French direct-to-consumer (D2C) platform distribution channel is increasingly large and managers should not ignore it. The two main pillars of
    the country’s D2C platform market in France, Fortuneo and Boursorama, are growing at a healthy pace. In 2017 their combined assets grew 11%, rising from €37 billion ($43 billion) to more than €41 billion.
  • The market for independent financial advisers is growing and developing as the French public begins to move away from their traditional source of
    financial advice—their banker—and starts to appreciate the value that an independent third party can add. The market’s expansion, however, is being
    constrained by new local regulations designed to implement key aspects of Mifid II, which prevent independent advisoes accepting retrocessions for the products they sell. The regulation requires firms to avoid possible conflicts of interest and clearly communicate to clients how they earn their fees.
  • At approximately €2.5trn, the French institutional market is one of the largest in Europe, but its pension market is relatively small at €275.5bn as of 2016. The bulk of retirement savings in France are in life insurance assets rather than pensions and are thus managed by insurance companies. More than half of the country’s pension assets are in occupational pension funds, around 20% are in public service pensions, and the remainder are in personal pensions.
  • No one-size-fits-all solution exists when it comes to French life insurers’ asset allocation. Cerulli’s analysis of the country’s largest life insurers’ solvency and financial condition reports shows that insurers with investment assets of more than €23bn tend to allocate more to government bonds (around 35.7% in 2017) than insurers with assets of less than €5b, whose average allocation to government bonds was 25.4% in 2017. For corporate bonds, the opposite is true: the largest French insurers tend to allocate less to this asset class than the country’s smallest insurers.

To review the full research, click here: https://www.cerulli.com/publications/asset-management-in-france-2018-the-keys-to-success-in-a-challenging-market-71ac56d9-f876-e711-810b-5065f38a5961


Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

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