Retail: Competing
in the New World
J.P. Morgan UK Financials Conference
Wednesday, 8 December 2010
James Cardew
Global Head of Marketing
Schroders plc
Agenda
– Schroders Global business
– Schroders UK intermediary business
– Challenge 1: regulatory change, and specifically the RDR
– Challenge 2: changing demands of our clients
– Summary and Q&A
1
Overview of Schroders
£181.5bn funds under management
– Founded in 1804
– Over 450 investment
professionals worldwide
Bermuda
Cayman Islands
Mexico City
New York
Philadelphia
– 32 offices in 25 countries
Amsterdam
Copenhagen
Frankfurt
Geneva
Guernsey
Gibraltar
Jersey
London
Luxembourg
Madrid
Milan
Paris
Rome
Stockholm
Zurich
Beijing
Hong Kong
Jakarta
Mumbai
Seoul
Shanghai
Singapore
Sydney
Taipei
Tokyo
Dubai
Buenos Aires
São Paulo
2
Our strategy
Investment led, organic growth
– Exclusive focus on asset management
– Organic growth
– Bolt-on acquisitions
– Deliver superior performance for clients
– Highly diversified business model: growth and defensive characteristics
– Financial strength
3
Our focus
Key drivers of performance
– Client led
– Broad product range
– International diversification
– Strong distribution capability
9 months to end
September 2010
net inflows:
£21.5bn
– Financial strength
of which £5.9bn
in Intermediary
4
Putting our Intermediary business in context…
Total funds under management £181.5bn; Intermediary £68.5bn
Total: by channel
Intermediary: by region
Intermediary: by product
9%
8%
12%
54%
25%
54%
9%
34%
38%
25%
32%
Institutional
UK
Equities
Intermediary
Asia Pacific
Alternatives
Private Banking
Continental Europe
Private Banking
Americas
Fixed Income
Multi-asset
By client domicile
5
Schroders UK Intermediary assets: diverse by channel
Funds under management – September 2010
Sub
Advisory,
£1,707m
Direct, 6%
Discretionary,
40%
GFIG, 29%
Retail
Branded,
£15,713m
6
Advisory,
25%
Intermediary channel – routes to market
Developing new propositions
Schroders
Discretionary
For instance…
Schroders solution
Wealth managers,
Component funds
Private banks, Multi-
Sub advised mandates
managers, Packagers
Wholesaler
Fund supermarkets
Unit linked and non-linked funds,
Life companies
Sub-advised mandates
Banks
Asset allocation services
Distributor Influenced Funds,
Tied Advisers
Independent Advisers
Bank and insurance
tied Agents,
Independent
Financial Advisers
End client
Predominantly HNW
and Mass affluent
7
Multi-asset, structuring solutions
Third way (VA-style) solutions
Outcome oriented structures / funds
A market leading position with Discretionary managers
Overall relationship with investment house
Very Poor / Poor
Very Good / Excellent
Schroders
44 2 Feb 10
-7
M&G
40
-4
Invesco Perpetual
31
-2 -4
F&C Investments
31
Market Average
25
-3 -4
Henderson New Star
-3 -7
Jupiter
-3
Fidelity
-3 -6
BlackRock
-5
20
3
20
3
15
10
8
4
3
19
-2
6
7
21
Neptune
Artemis
-3 -7
Gartmore
-7
First State Investment
20
19
14
-3 -8
-20
-10
0
10
Q9e: How would you rate the following companies in terms of the overall relationship with
8 investment house?
BASE: All DAM supporters. * = Caution small base (n<50)
20
30
40
50
We have broken into the top 5 in the Advisory market
Overall rating – IFAs
Very Poor / Poor
Very Good / Excellent
Invesco Perpetual
-2
42
Fidelity
-1 -2
42
Jupiter
-1 -3
M&G
-3
37
33
Gartmore
-2 -7
Artemis
-2 -7
Henderson New Star
16 3
14 1
14
-2 -14
F&C Investments
11 1
-2 -16
-30
-20
14
17 3
-3 -8
Neptune
11
19 2
-1 -4
First State Investment
12
24 2
-3 -5
BlackRock
Feb 10
29 4
-1
Schroders
28
-10
0
10
20
Q4a: How would you rate the following companies as providers in the investment market?
9 BASE: All IFAs (188)
30
40
50
60
70
80
Agenda
– Schroders Global business
– Schroders UK intermediary business
– Challenge 1: regulatory change, and specifically the RDR
– Challenge 2: changing demands of our clients
– Summary and Q&A
10
Challenge 1: Regulation – not only a UK issue…
Operating in a more regulated environment
– Retail Distribution Review – UK
– Alternatives Investment Fund Management (AIFM) Directive
– Review of MiFID
– UCITS IV...and UCITS V
– Packaged Retail Investment Products (PRIPs)
11
Challenge 1: The Retail Distribution Review (RDR)
–To remove product and provider bias (fees replace
commissions)
Objectives
–To improve professional standards
–To improve consumer choice
12
Challenge 1: Changing the shape of the advice
market in the UK…
Fund managers/providers
– costs increase, decreased longevity
DAMs + PBs
5,000
Increased
influence,
but also
competition
Independent Platforms
19 – increased influence
IFAs
30,000 –
shrinks to c.
20,000
Tied / multitied
3,000 grows
as become
more
attractive
Bank
Advisory /
sales
8,000 grows
New
entrants?
End consumers – more transparency, but potential reduction in advice?
13
Challenge 1: The Retail Distribution Review (RDR)
– 25% to 30% of IFAs could leave the industry
– Banks could re-enter the lower end of the advisory market
Implications:
– We expect IFA’s to continue the trend to outsource Investment Management
Market
– We expect to see increasing demand for low cost passive / quasi-passive Funds
– We expect non-advised execution only business to significantly increase
– We will need to launch multiple unit classes to accommodate legacy assets, new
business flows and advisory platforms
Implications:
– We are launching a limited range of low cost core products
Products /
Strategy
– We expect a reduction in longevity as a result of an increase in
discretionary business
– We have increased our resources dealing with UK FIGs in the run up to RDR to
maximise any opportunities arising
14
Challenge 2: The changing demands of clients
Drivers
Implications
Demographics and ageing population
Shift from Government and corporate risk to
individual risk for retirement products
New products don’t drive net flows – track records
very important
Growth of Defined Contribution
High correlations between markets
Disappointment with strategic asset allocation
Market volatility
Future of flows is global, across all asset classes
Flexible, unconstrained products taking share from
benchmark-relative strategies
Demand for passive continues
Lasting client risk aversion
Lack of confidence in financial institutions/ active
managers
Rise of emerging markets
Slower economic growth
Globalisation
Pricing pressure
Inflation concerns
15
Outcome oriented products – i.e. income solutions
Demand for diversifying strategies offering
uncorrelated returns, selectively
Challenge 2: How has this impacted the UK?
Traditional ‘favourites’ less dominant
H1 2010
2009
Gross
%
Net
%
Gross
%
Net
%
UK Equity Growth
10
£ Strategic Bonds
16
UK Corporate Bonds
17
UK Corporate Bonds
29
UK Corporate Bonds
10
Property
12
UK Equity Growth
11
Absolute Return
9
£ Strategic Bonds
7
Cautious Managed
11
£ Strategic Bonds
6
£ Strategic Bonds
8
Asia Pacific (ex Jpn)
6
Absolute Return
11
Asia Pacific (ex Jpn)
5
Asia Pacific
7
North America
6
Global Bonds
9
Global Growth
5
Global Growth
7
Absolute Return
5
North America
7
Gross
%
Net
%
Property
5
Global Emerging Markets
6
UK Equity Growth
15
UK Corporate Bonds
56
Property
12
Global Growth
19
UK Corporate Bonds
12
Property
14
UK Equity Income
10
North America
12
Gross
%
Net
%
UK Equity Growth
17
Property
20
Property
15
UK Equity Growth
17
UK Equity Income
13
Cautious Managed
12
UK Corporate Bonds
9
UK Equity Income
11
2008
2007
Source for industry data: Investment Management Association
16
Schroders & Industry funds under management
UK Bonds and multi-asset have grown significantly
Industry AUM by sector
Industry AUM by sector
Schroders AUM by sector
September 2005
September 2010
September 2010
1
3
3
6
9
21
5
10%
4
33
3
4
45
4%
4
5%
5%
8
5%
8
10
14
UK Equities
Property
40%
4%
6
11
3%
4%
UK Bonds
Other
US Equities
20
Global Equities
Multi asset / Multi manager
5%
European Equities
Global Bonds
7%
8%
Commodities
Japan Equities
Structured
Asia Pacific Equities
UK funds under management are dominated by Retail Branded Equity products
Source for industry data: Investment Management Association
17
In summary
Schroders: well placed for continued growth
– UK RDR: viewed positively
– Strong brand
– Established Discretionary relationships
– Strength of International Distribution network
– Broad product range
– Range of long term growth opportunities
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Forward-Looking Statements
These presentation slides may contain forward-looking statements with respect to the
financial condition and results of the operations and businesses of Schroders plc
These statements and forecasts involve risk and uncertainty because they relate to
events and depend upon circumstances that may occur in the future
There are a number of factors that could cause actual results or developments to differ
materially from those expressed or implied by those forward-looking statements and
forecasts. Forward-looking statements and forecasts are based on the Directors’
current view and information known to them at the date of this presentation. The
Directors do not make any undertaking to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Nothing in this presentation should be construed as a profit forecast.
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