AST: How would you describe the overall transfer agency market at the moment?
Tony Klim: From our perspective, the focus is on greater efficiency and better services. This is reflected in platform consolidation - many big players have multiple platforms servicing lots of clients and they are trying to reduce the number of platforms while still being able to offer a range of services to multiple clients.
The drive for greater transparency and better customer service hasn’t necessarily been driven by the financial crisis we’ve all been through, but it has certainly brought it out in the open.
Platform consolidation has largely been driven by the move of fund managers towards third party administrators. These administrators have attracted new business, which has often operated on different platforms. Transfer agency is pretty commoditised and it doesn’t make sense to run multiple platforms due to the costs involved and the need to improve efficiency. This also extends to the convergence of hedge and long funds, which are very different models, with older platforms unable to cope with the range of different funds on offer.
So while there is the history of different platforms supporting different clients, acquisition has played the major part in platform consolidation.
AST: What is driving the change?
Klim: It’s a cost issue, times have been hard. In this sector, you get a blurring of the overall business model between custody, fund administration and transfer agency. But now there’s more of a drive to find areas of profitability.
The other driver has been the blurring between transfer agency and distributor services - we’ve invested a lot of time into a broad platform model that will provide enhanced distributor services.
In the UK, the hot topic has been wrap platforms and fund supermarkets. To date, most players have developed their own platform, but we expect to see a convergence to service providers in a similar manner to that experienced with transfer agency. These providers are offering what they see as a value added service, they’re able to support not just the individual fund managers, but also wealth managers, IFAs, bancassurers, networks etc and provide many of the investment administration services they require.
AST: Is transfer agency now seen as a profit centre?
Klim: There is significant variation between the organisations. Some don’t think of transfer agency as a profit centre in its own right, but rather as part of a value chain offering that maintains a strategic relationship with a client in the midst of a range of other services, so the transfer agency component forms a cross-subsidisation element across the business.
But wherever there is market pressure, it causes people to break down the value chain and there is scope to become a standalone profit centre.
AST: What are your clients demanding of you?
Klim: It’s simple: Quality, efficient technology. Bravura is a proven provider and we know that what we can bring to the table is extensive industry knowledge. We supply a number of different transfer agency providers, from the biggest third party providers to individual fund managers. We have made a name in this sector, partly through acquisition but also through development.
We’re also starting to focus on areas like Brazil and Asia, where there are tremendous possibilities for growth, and some way to go in terms of transfer agency and platforms.
AST: Does the market have significant geographical variances?
Klim: The mature markets of the UK, Dublin and Luxembourg, as well as the US are similar. Some markets that are less established have more work to do to catch up, but it does mean that they can move straight to a platform model. The main thing that makes the markets different is the distribution model - whether it’s independent, tied, bank owned and so on.
We are seeing a trend towards using common service providers, although some territories are more mature than others in the evolutionary cycle - 25 years ago fund managers were all doing their own thing, but now administration is largely undertaken by a few large players. In emerging market territories, though, it’s not like that yet.
Once the consolidation has taken place, it’s all about how you differentiate, and the big service providers are moving into broader wealth management provision. In the UK, there are 60-80 wealth managers all replicating similar infrastructure, it’s a very fragmented market with plenty of opportunities.
AST: How much is regulation having an impact on the business?
Klim: It can be very expensive to implement, especially if you are a single fund manager. There are economies of scale by using a software provider or a service provider.
As a software provider, we have to adapt. If you take something like FATCA or the RDR in the UK, we have to deal with that. It’s not a major part of our business but it does give us the opportunity to help our clients by sharing the costs across our client base.
AST: What makes good technology?
Klim: There are key areas. It must have the ability to support scale; it must be configurable; it must meet the requirements of the individual fund managers; and it must support multiple distribution models. We make a big thing about following the service oriented architecture model to ensure interoperability.
AST: How do you see the future developing?
Klim: The market will become more efficient and more global. There will be more consolidation of platforms as well as convergence of long fund and hedge fund models.
What is important is that there will be a move of transfer agents to support distributed services with a broader wealth management record keeping proposition - it’s about moving up the value chain towards distribution.
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