Forks in the road
02 March 2016
The road for transfer agents is long and fraught with danger, and ITAS delegates found there’s no knowing the best way out of the woods
Image: Shutterstock
The International Transfer Agency Summit (ITAS) in Luxembourg was dominated by talk of the many challenges facing the modern financial services industry, from new and ‘disruptive’ fund types to the ever-increasing regulatory burden.
One panel discussion tackled the obstacles that remain in the way of the industry taking full advantage of big data. A resounding 100 percent of respondents to a survey agreed that big data will continue to play a role in the industry, but when asked to identify the biggest obstacles for financial services in leveraging the advantages of big data, opinions were split.
A small majority of 34 percent said the main issue is a lack of understanding, appetite and vision, while 28 percent were more concerned about the availability of data. A quarter of respondents thought the biggest obstacle would be regulations and know-your-client (KYC) rules, while 13 percent highlighted IT infrastructure as an issue.
Dan Cwenar, general manager for data and analytics solutions at Broadridge, and a conference panellist, argued that the real issue is what to do with the data when it is available, saying the industry is “drowning in data and lacking in intelligence”.
He also suggested that often, even when data is received, it is inaccurate, meaning a lot of investment in cleaning and making sense of data.
Another speaker, Ruaraidh Thomas, managing director at DST, suggested that while some challenges are industry-specific, other regulatory issues apply to all industries. He added that data is often not properly looked at, or used to best effect, suggesting that any technology is only “useful if you know why you want it”.
He said: “We need to ensure we get the right building blocks in place and that is the biggest challenge.”
Thomas continued to say that there are challenges in understanding the data firms have, and in getting it into a useable state, before thinking about what it can be used for. He argued that “the biggest question is how”, before the industry should worry about the “why”.
Another panel addressed the possibility of a challenging environment driving asset managers to engage in the direct-to-consumer (D2C) market. However, Abraham Okusanya, founder of research consultancy FinalytiQ, argued that this is not a viable option, as the market is too competitive.
Okusanya suggested that asset managers have historically always outsourced client communication and that to change this would be a culture shock. “Many fund managers are incapable of that,” he said.
While suggesting that the D2C market is a large one, and that a D2C platform can generate healthy profit margins of up to 20 percent, Okusanya pointed out that there is a lot of competition in the marketplace, and that fund managers will not be able to compete in a profitable way.
Ultimately, he said, this would put more pressure on profit margins, which is what the industry as a whole is striving to avoid.
Alan Hawthorn, global head of investor services at Aberdeen Asset Management, took a different view, suggesting that end investors are moving away from a ‘nanny’ pension system, and may benefit from direct communication with a fund manager.
A third panellist, Matthijs Aler, COO at Ohpen, a Dutch mutual fund and savings account platform, added that a new generation of investors may be likely to move away from traditional distribution channels, and that fund managers could benefit from bringing their product to these consumers directly.
Aler added that it is not necessarily fund managers’ branding that is the most important, but “the willingness to invest in marketing”.
Currently, fund managers are business-to-business experts, when they should learn to be business-to-consumer experts, he said, adding that this is the big challenge for them today.
Several sessions also honed in on the issue of market disruption. A presentation from Broadridge’s Cwenar focused on exchange-traded funds (ETFs) as a disruptive product.
Using the example of using physical mail for proxy voting, Cwenar argued that “if you don’t disrupt you’re going to be disrupted”. Proxy voting is now all conducted electronically, and institutions have to keep up with that.
He highlighted three main factors contributing to the increased popularity of ETFs: technology, which is changing the ways that people invest and create opportunity; regulation, which is becoming more and more complex, demanding more transparency and lower costs; and client demand—modern investors are seeking more choice, lower costs, and independent and customised advice.
Pointing to a 25 percent increase in registered investment advisors in the US, Cwenar suggested that more advisors are now more likely to base investments on a client’s demands that on commission and fees. He also drew attention to the fact that 80 percent of advisors are now using ETFs, compared to 68 percent two years ago.
In the European market, Cwenar said, Broadridge has also seen an increase in demand for passive products, driven by regulatory changes, such as the Markets in Financial Instruments Directive (MiFID) II, that focus on transparent fee structures. Rather than losing clients from high-margin products, he said, fund managers can retain those clients through low-margin products.
He predicted that ETF assets are likely to increase more in the European market as “the momentum is there”, however, he also pointed to an emergence in the US of active managers trying to launch ETF-style “unique structures but without the transparency”.
Rob Formby, director of retail operations at Allan Gray, also highlighted the changing investment management landscape, and was another speaker to note the increase in compliance obligations, saying it “is a risk, but it’s also an opportunity”.
Either way, he argued, additional compliance requirements are “a reality”, while at the same time technology such as robo-advisor services are increasing in popularity, the “advice landscape” is seeing dramatic changes, and “clients are demanding a much higher level of service”.
Client expectations are adapting in line with technological advancements, said Formby, and new payment players such as tech giants Apple, Amazon and Google may have a significant impact on the market.
He suggested that investment management solutions today should be “far more with consumers in mind and very easy to operate”, while being “device-agnostic” and “omni-channel”, meaning that all services are dealt with on a single platform and placed in one queue.
Formby also noted that all departments working with new technology would also have to deal with legacy systems, conceding: “They’ll have to deal with that.”
He concluded that, ultimately, good customer service is integral to client services, stressing that both institutional and individual investors are more willing to trust a fund manager if they receive good customer service, and if operations run smoothly.
While actual cost-savings in this area are hard to quantify and “difficult to illustrate”, Formby argued the importance of solving any issues with clients first, before addressing the problems in-house, saying the implications of this can be “massive”.
Finally, a panel dedicated to the impact of MiFID II found that approaches to compliance vary significantly between financial services firms. When, in a live survey, delegates were asked about the size of the team they have working on MiFID II compliance solutions, 47 percent answered ‘fewer than five’, while 33 percent said ‘more than 20’.
The remaining 20 percent all answered ‘10 to 20’, while the ‘five to 10’ option received no votes.
Delegates were then asked for estimates of how much their compliance budgets would be apportioned to MiFID II over the next three years.
Again, results were varied, with 37 percent believing MiFID II would take up 10 to 20 percent of their budgets, and 37 percent choosing the ‘up to 10 percent’ option. While 20 percent believed the cost would represent 20 percent of their budgets, 6 percent of respondents it would be ‘too much to contemplate’.
Due to the live-poll nature of the survey, results fluctuated dramatically before settling on these figures, which one panellist suggested was reflective of the industry’s position on the directive, saying: “The figure is moving because we are not sure.”
David Moffat, group executive of IFDS and a moderator on the panel, said afterwards that the survey results were indicative of a divide in the industry.
“The big fund managers are alive to this—they’ve got global programmes and a lot of people working on it. The middle- and small-tier fund managers are not prepared, and actually, the 12-month delay has played in to them thinking they have more time to work on it, and that’s a mistake,” he said.
“I am worried that MiFID II is just another brick in the barrier-to-entry wall and that small and medium managers will find it proportionately harder to accommodate. It becomes just another load around their necks.”
One panel discussion tackled the obstacles that remain in the way of the industry taking full advantage of big data. A resounding 100 percent of respondents to a survey agreed that big data will continue to play a role in the industry, but when asked to identify the biggest obstacles for financial services in leveraging the advantages of big data, opinions were split.
A small majority of 34 percent said the main issue is a lack of understanding, appetite and vision, while 28 percent were more concerned about the availability of data. A quarter of respondents thought the biggest obstacle would be regulations and know-your-client (KYC) rules, while 13 percent highlighted IT infrastructure as an issue.
Dan Cwenar, general manager for data and analytics solutions at Broadridge, and a conference panellist, argued that the real issue is what to do with the data when it is available, saying the industry is “drowning in data and lacking in intelligence”.
He also suggested that often, even when data is received, it is inaccurate, meaning a lot of investment in cleaning and making sense of data.
Another speaker, Ruaraidh Thomas, managing director at DST, suggested that while some challenges are industry-specific, other regulatory issues apply to all industries. He added that data is often not properly looked at, or used to best effect, suggesting that any technology is only “useful if you know why you want it”.
He said: “We need to ensure we get the right building blocks in place and that is the biggest challenge.”
Thomas continued to say that there are challenges in understanding the data firms have, and in getting it into a useable state, before thinking about what it can be used for. He argued that “the biggest question is how”, before the industry should worry about the “why”.
Another panel addressed the possibility of a challenging environment driving asset managers to engage in the direct-to-consumer (D2C) market. However, Abraham Okusanya, founder of research consultancy FinalytiQ, argued that this is not a viable option, as the market is too competitive.
Okusanya suggested that asset managers have historically always outsourced client communication and that to change this would be a culture shock. “Many fund managers are incapable of that,” he said.
While suggesting that the D2C market is a large one, and that a D2C platform can generate healthy profit margins of up to 20 percent, Okusanya pointed out that there is a lot of competition in the marketplace, and that fund managers will not be able to compete in a profitable way.
Ultimately, he said, this would put more pressure on profit margins, which is what the industry as a whole is striving to avoid.
Alan Hawthorn, global head of investor services at Aberdeen Asset Management, took a different view, suggesting that end investors are moving away from a ‘nanny’ pension system, and may benefit from direct communication with a fund manager.
A third panellist, Matthijs Aler, COO at Ohpen, a Dutch mutual fund and savings account platform, added that a new generation of investors may be likely to move away from traditional distribution channels, and that fund managers could benefit from bringing their product to these consumers directly.
Aler added that it is not necessarily fund managers’ branding that is the most important, but “the willingness to invest in marketing”.
Currently, fund managers are business-to-business experts, when they should learn to be business-to-consumer experts, he said, adding that this is the big challenge for them today.
Several sessions also honed in on the issue of market disruption. A presentation from Broadridge’s Cwenar focused on exchange-traded funds (ETFs) as a disruptive product.
Using the example of using physical mail for proxy voting, Cwenar argued that “if you don’t disrupt you’re going to be disrupted”. Proxy voting is now all conducted electronically, and institutions have to keep up with that.
He highlighted three main factors contributing to the increased popularity of ETFs: technology, which is changing the ways that people invest and create opportunity; regulation, which is becoming more and more complex, demanding more transparency and lower costs; and client demand—modern investors are seeking more choice, lower costs, and independent and customised advice.
Pointing to a 25 percent increase in registered investment advisors in the US, Cwenar suggested that more advisors are now more likely to base investments on a client’s demands that on commission and fees. He also drew attention to the fact that 80 percent of advisors are now using ETFs, compared to 68 percent two years ago.
In the European market, Cwenar said, Broadridge has also seen an increase in demand for passive products, driven by regulatory changes, such as the Markets in Financial Instruments Directive (MiFID) II, that focus on transparent fee structures. Rather than losing clients from high-margin products, he said, fund managers can retain those clients through low-margin products.
He predicted that ETF assets are likely to increase more in the European market as “the momentum is there”, however, he also pointed to an emergence in the US of active managers trying to launch ETF-style “unique structures but without the transparency”.
Rob Formby, director of retail operations at Allan Gray, also highlighted the changing investment management landscape, and was another speaker to note the increase in compliance obligations, saying it “is a risk, but it’s also an opportunity”.
Either way, he argued, additional compliance requirements are “a reality”, while at the same time technology such as robo-advisor services are increasing in popularity, the “advice landscape” is seeing dramatic changes, and “clients are demanding a much higher level of service”.
Client expectations are adapting in line with technological advancements, said Formby, and new payment players such as tech giants Apple, Amazon and Google may have a significant impact on the market.
He suggested that investment management solutions today should be “far more with consumers in mind and very easy to operate”, while being “device-agnostic” and “omni-channel”, meaning that all services are dealt with on a single platform and placed in one queue.
Formby also noted that all departments working with new technology would also have to deal with legacy systems, conceding: “They’ll have to deal with that.”
He concluded that, ultimately, good customer service is integral to client services, stressing that both institutional and individual investors are more willing to trust a fund manager if they receive good customer service, and if operations run smoothly.
While actual cost-savings in this area are hard to quantify and “difficult to illustrate”, Formby argued the importance of solving any issues with clients first, before addressing the problems in-house, saying the implications of this can be “massive”.
Finally, a panel dedicated to the impact of MiFID II found that approaches to compliance vary significantly between financial services firms. When, in a live survey, delegates were asked about the size of the team they have working on MiFID II compliance solutions, 47 percent answered ‘fewer than five’, while 33 percent said ‘more than 20’.
The remaining 20 percent all answered ‘10 to 20’, while the ‘five to 10’ option received no votes.
Delegates were then asked for estimates of how much their compliance budgets would be apportioned to MiFID II over the next three years.
Again, results were varied, with 37 percent believing MiFID II would take up 10 to 20 percent of their budgets, and 37 percent choosing the ‘up to 10 percent’ option. While 20 percent believed the cost would represent 20 percent of their budgets, 6 percent of respondents it would be ‘too much to contemplate’.
Due to the live-poll nature of the survey, results fluctuated dramatically before settling on these figures, which one panellist suggested was reflective of the industry’s position on the directive, saying: “The figure is moving because we are not sure.”
David Moffat, group executive of IFDS and a moderator on the panel, said afterwards that the survey results were indicative of a divide in the industry.
“The big fund managers are alive to this—they’ve got global programmes and a lot of people working on it. The middle- and small-tier fund managers are not prepared, and actually, the 12-month delay has played in to them thinking they have more time to work on it, and that’s a mistake,” he said.
“I am worried that MiFID II is just another brick in the barrier-to-entry wall and that small and medium managers will find it proportionately harder to accommodate. It becomes just another load around their necks.”
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