NeMa: Regulation affecting custody costs
16 June 2016 Dubrovnik
Image: Shutterstock
The way that custodians price their services is changing due to the onslaught of regulation, according to a panel session at NeMa.
In a survey on the evolution of the cost model for custody, 71 percent of respondents said regulation is affecting profitability and pricing, and that their institution is considering increasing its prices.
While a further 18 percent said profitability is affected, but not to such an extent that they are increasing prices, 8 percent said they have in fact already started making these price increases. Only 1 percent answered that regulatory change has not affect profitability at all.
One speaker suggested that in the current environment, “you’re delivering custody but it’s not just custody”, adding that what is really going to add value for clients is data—having an exact view of investments and how funds are performing.
Another pointed out that the regulatory burden, and associated cost increases, is showing no sign of slowing down, as markets continue to bring in local sanctions and regulations for foreign investors.
When asked whether they believe clients will be willing to pay more for custody, the survey results were more evenly split. The most popular answer, with 39 percent of the vote, was that clients will not be willing to pay more, but that any reduction in price will be very limited.
Almost a quarter, 24 percent, said that prices will increase in all areas, while 19 percent said prices will remain stable. A further 10 percent said cost of custody will be significantly reduced, and 8 percent said customers will be willing to pay more, but only for global custody.
In response to this, one panellist said that if asset protection and sustainability remain as an important part of the business, everyone has to accept that the cost of doing business has changed.
Another noted a move towards unbundling of prices, suggesting that the core, underlying product can be relatively cheap, with additional, bespoke ‘extras’ built around it, allowing for different models and different pricing schedules.
One panellist expanded on this, noting that the rise of financial technology could help clients to tailor their own services, again, through giving them access to more of their own data. This way, a pricing model would exist where net costs are reduced, asset managers can select their own services, and there will be more flexibility in the pricing of custody.
In a survey on the evolution of the cost model for custody, 71 percent of respondents said regulation is affecting profitability and pricing, and that their institution is considering increasing its prices.
While a further 18 percent said profitability is affected, but not to such an extent that they are increasing prices, 8 percent said they have in fact already started making these price increases. Only 1 percent answered that regulatory change has not affect profitability at all.
One speaker suggested that in the current environment, “you’re delivering custody but it’s not just custody”, adding that what is really going to add value for clients is data—having an exact view of investments and how funds are performing.
Another pointed out that the regulatory burden, and associated cost increases, is showing no sign of slowing down, as markets continue to bring in local sanctions and regulations for foreign investors.
When asked whether they believe clients will be willing to pay more for custody, the survey results were more evenly split. The most popular answer, with 39 percent of the vote, was that clients will not be willing to pay more, but that any reduction in price will be very limited.
Almost a quarter, 24 percent, said that prices will increase in all areas, while 19 percent said prices will remain stable. A further 10 percent said cost of custody will be significantly reduced, and 8 percent said customers will be willing to pay more, but only for global custody.
In response to this, one panellist said that if asset protection and sustainability remain as an important part of the business, everyone has to accept that the cost of doing business has changed.
Another noted a move towards unbundling of prices, suggesting that the core, underlying product can be relatively cheap, with additional, bespoke ‘extras’ built around it, allowing for different models and different pricing schedules.
One panellist expanded on this, noting that the rise of financial technology could help clients to tailor their own services, again, through giving them access to more of their own data. This way, a pricing model would exist where net costs are reduced, asset managers can select their own services, and there will be more flexibility in the pricing of custody.
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