Adapting to the new norm
13 May 2020
Although the core role of the transfer agent has remained unchanged, they have had to keep pace with how investor buying behaviour and the demands of the investment management community have transformed
Image: ferdy_timmerman/shutterstock.com
In recent years, clients have come to expect more from their transfer agents. Clients want their transfer agent to provide platforms that simultaneously connect businesses with markets, engage customers with their investments and allow them to grow and transform.
However, Steve Banfield, industry director at Equiniti, says the core role of the transfer agent has remained unchanged in respect of contractual duties to service shareholders on behalf of corporate issuers.
Banfield notes: “We continue to proactively manage share registers, communicate with shareholders and employees using modern digital platforms, administer payments, and support our customers through any corporate events that they undertake.”
One of the biggest changes is the rapid technological shifts and regulation in the industry. In order to add value and remain a core part of the investor journey, transfer agents have had to keep pace with how investor buying behaviour and the demands of the investment management community have transformed.
Ed Hamilton-Russell, head of business development Europe, the Middle East and Africa at Link Fund Solutions, explains: “Transfer agents play an increasingly significant part in interacting between asset managers and investors, both of whom expect to have a dynamic and flexible investment experience and continue to expect so via increasingly sophisticated and complex models.”
Transfer agents have needed to adopt and utilise new technologies to continue to function as a key part in the value chain of investors and the companies that service them.
Rachel Turner, head of Europe, the Middle East and Africa asset managers and insurance at BNY Mellon, suggests that more asset managers are using digital interfaces to develop direct, long-term relationships with customers.
Turner notes as they move away from using fund distribution platforms they are increasingly relying on transfer agents to ensure responsive and user-friendly interaction. She comments: “Asset managers look to transfer agents to offer innovative technology solutions that provide the self-service functionality and comprehensive digital interface that meet the specific needs of their clients.”
Additionally, since the 2008 financial crisis, regulators have increasingly focused on protecting the end investor and their investment.
Hamilton-Russell argues that transfer agents play a “crucial role” in ensuring that know-your-customer and anti-money laundering, and the protection of client assets is completed in a “thorough and timely manner”.
He says: “Asset managers rely on their transfer agent to have a robust and comprehensive client on-boarding process that satisfies both the regulation and the overall investor journey.”
Technological developments
With technological development impacting the way transfer agents work, Elena Casalegno, head of transfer agency operations and shareholder services at European Fund Administration (EFA), suggests that the main effect has been the introduction of complementary tools that add communication options, enhance secure counterparty identification or reporting and provide data for analytical purposes.
Casalegno explains that the application of technology in these areas has enabled transfer agents to provide clients with both reference and transaction data covering the activities of their funds, along with channels to receive or access the information with varying levels of authentication to ensure data security.
The biggest change is how firms communicate to shareholders and employees, adapting and developing solutions to modern technologies. Banfield comments: “Many investors now elect for electronic communications over paper, and we have been able to develop and deliver digital enhancements when faced with regulatory change.”
However, one of the key challenges is to navigate the rapid move to a digital world while continuing to satisfy company law and regulation that supports paper processes and wet signatures, according to Banfield.
Overall, technological developments have helped transfer agents to manage new regulations requiring the disclosure, reporting and monitoring of client and investor activity, but Casalegno explains that so far “no game-changing disruptive technologies have emerged with a material impact on services provided to mainstream asset classes”.
Adaption
With the ever-changing environment, transfer agents are challenged to adapt. Customer behaviour and expectations require a greater shift to online portals and a requirement to be able to transact/service funds directly.
Hamilton-Russell explains that this increases the importance for transfer agents to add value to the end investors and asset managers, who are increasingly looking to their transfer agents to enable flexible, easy-to-use and brand-aware access to their funds.
“It means not only that transfer agents must ensure that their digital offering, whether facing retail investors or their advisers, reflects the brand values of asset managers, but that their digital offering and communication must also be accessible. They must enable asset managers to deliver regulatory documentation and engaging supplementary fund information, cost effectively, to build and enhance positive client relationships and in turn understand the profile of their investors”, says Hamilton-Russell.
He suggests that the successful transfer agents of tomorrow will be those most adept at delivering enhanced digital service solutions, whether developed in-house or achieved through partnering with external tech providers, to support the rapidly changing fund distribution landscape.
Meanwhile, amid intense cost pressure and demand from clients for a more extensive range of services, Casalegno says that transfer agents will need to deploy smart technology on an ongoing basis in order to service clients or weigh up the risks and rewards of providing services.
Casalegno comments: “While a competitive environment that delivers value for money to clients and their investors is healthy, it’s also important to be able to define what is being provided and at what cost during new business negotiations and in-service reviews.”
“If there is a gap between the client’s service expectations and what is delivered, the disconnection will sour the best of relationships. Currently, the quality aspect of service is not prominent enough on the agenda of transfer agents and clients negotiating the cost of service”, she adds.
Turner explains that in order for transfer agents to adapt to the constantly changing, they need to have great flexibility. She notes that breadth, depth and flexibility to support all investor types and distribution channels, new fund types, asset classes and multiple fund ranges across different domiciles is important.
However, she says: “At the same time, transfer agents need to be able to deal with technological evolution, regulatory changes and investor preferences.”
Concentration of transfer agents
With increasing levels of manpower and cost associated with regulatory compliance, has it become difficult for smaller transfer agents to keep up?
There is no doubt that regulation has increased across the financial industry, particularly following the global financial crisis, resulting in significant investment in technology and resources to ensure compliance. Banfield says this will “undoubtedly place significant burden” on smaller transfer agents as they invest to keep up.
He adds: “The industry has already undergone a period of consolidation leaving a relatively small number of service providers. That said, the burden is increasing and further consolidation may well occur.”
However, Hamilton-Russell suggests that there have also been some larger asset servicers who take the decision that transfer agency is not a service that adds significant value to their own shareholders and so they chose to focus on their core products of custody, depositary and administration services.
At the same time, Hamilton-Russell notes that there have been new market entrants emerging from the technology arena, whose strategy is focussed solely on delivering a service centred around technology.
While technology is playing an increasingly important part of the transfer agency industry there is still a requirement for human interaction and the investment this entails.
He says: “As a result, we envisage that while there may be some changes in the individual players in the transfer agency space, those providers who view transfer agents as a core proposition and recognise its importance in the asset management sector will go the distance.”
Casalegno explains that in order to maintain compliant up-to-date records for the same financial intermediary, whose risk profile might differ according to how it is assessed in business relationships with two different customers, poses various procedural problems, in addition to the frustration of having to explain the difference to the financial intermediary.
She states: “Until technological solutions are available to enable transfer agents to manage these complex issues, size will have limited impact on market strength – regulatory risk is likely to be a deciding factor.”
Next five years
The pace of technological development is not looking to slow down, and although the core role of the transfer agent has not changed, the adoption of new ways will be required to keep up with investors.
Hamilton-Russell notes that as funds become more commoditised and asset managers find it more difficult to differentiate their value and products, along with the rise in passive funds, the investor journey is going to continue to grow in importance.
He says: “It is going to become increasingly easy for investors to ‘shop around’ and express their dissatisfaction by ‘voting with their feet’. As a result, asset managers are going to have to have a laser-like focus on generating Alpha. Their reliance on a trusted partner to articulate and protect their brand, values and most importantly protect their clients, the end investors, is going to be ever more important.”
Having agile relevant technology, knowledgeable staff and a true partnership with asset management clients are going to be key for transfer agents over the next five years, according to Hamilton-Russell.
Elsewhere, Banfield suggests that as transfer agent services over to a digital service, the industry is shifting toward full dematerialisation through the removal of paper trades. This move will also provide more investment choice with investors benefiting from quicker electronic trade and settlement times whilst continuing to enjoy full membership rights.
He comments: “The issuance of paper will almost certainly reduce considerably as investors utilise modern technology and as corporate law moves to support companies wishing to drive good economic and social governance practices.”
Transfer agents had a much different agenda and list of priorities than they may have today, with the current COVID-19 pandemic. The coronavirus pandemic has resulted in most of the financial sector, including transfer agents, operating remotely, with most employees confined to their homes.
Casalegno believes this has highlighted the long tail of legacy communication methods, with delays in receiving original documents sent by post, instructions of various kinds that are still faxed from banking and wealth management systems, and documents sent via various telecommunication channels that lack provenance and whose authenticity would be unlikely to pass legal scrutiny.
She adds: “Over the next five years transfer agents will need to jettison their old technology and communication channels and identify new solutions that eliminate the cost and friction of outdated media that take a disproportionate amount of time to service and often result in disgruntled clients.”
“They will need to offer alternative communication solutions that are secure, intuitive to operate and demand minimum effort for adoption – remembering that clients are often asked to deal with solutions from multiple counterparties that are burdensome to install, maintain and operate. That’s hardly a recipe for success in the age of fintech.”
However, Steve Banfield, industry director at Equiniti, says the core role of the transfer agent has remained unchanged in respect of contractual duties to service shareholders on behalf of corporate issuers.
Banfield notes: “We continue to proactively manage share registers, communicate with shareholders and employees using modern digital platforms, administer payments, and support our customers through any corporate events that they undertake.”
One of the biggest changes is the rapid technological shifts and regulation in the industry. In order to add value and remain a core part of the investor journey, transfer agents have had to keep pace with how investor buying behaviour and the demands of the investment management community have transformed.
Ed Hamilton-Russell, head of business development Europe, the Middle East and Africa at Link Fund Solutions, explains: “Transfer agents play an increasingly significant part in interacting between asset managers and investors, both of whom expect to have a dynamic and flexible investment experience and continue to expect so via increasingly sophisticated and complex models.”
Transfer agents have needed to adopt and utilise new technologies to continue to function as a key part in the value chain of investors and the companies that service them.
Rachel Turner, head of Europe, the Middle East and Africa asset managers and insurance at BNY Mellon, suggests that more asset managers are using digital interfaces to develop direct, long-term relationships with customers.
Turner notes as they move away from using fund distribution platforms they are increasingly relying on transfer agents to ensure responsive and user-friendly interaction. She comments: “Asset managers look to transfer agents to offer innovative technology solutions that provide the self-service functionality and comprehensive digital interface that meet the specific needs of their clients.”
Additionally, since the 2008 financial crisis, regulators have increasingly focused on protecting the end investor and their investment.
Hamilton-Russell argues that transfer agents play a “crucial role” in ensuring that know-your-customer and anti-money laundering, and the protection of client assets is completed in a “thorough and timely manner”.
He says: “Asset managers rely on their transfer agent to have a robust and comprehensive client on-boarding process that satisfies both the regulation and the overall investor journey.”
Technological developments
With technological development impacting the way transfer agents work, Elena Casalegno, head of transfer agency operations and shareholder services at European Fund Administration (EFA), suggests that the main effect has been the introduction of complementary tools that add communication options, enhance secure counterparty identification or reporting and provide data for analytical purposes.
Casalegno explains that the application of technology in these areas has enabled transfer agents to provide clients with both reference and transaction data covering the activities of their funds, along with channels to receive or access the information with varying levels of authentication to ensure data security.
The biggest change is how firms communicate to shareholders and employees, adapting and developing solutions to modern technologies. Banfield comments: “Many investors now elect for electronic communications over paper, and we have been able to develop and deliver digital enhancements when faced with regulatory change.”
However, one of the key challenges is to navigate the rapid move to a digital world while continuing to satisfy company law and regulation that supports paper processes and wet signatures, according to Banfield.
Overall, technological developments have helped transfer agents to manage new regulations requiring the disclosure, reporting and monitoring of client and investor activity, but Casalegno explains that so far “no game-changing disruptive technologies have emerged with a material impact on services provided to mainstream asset classes”.
Adaption
With the ever-changing environment, transfer agents are challenged to adapt. Customer behaviour and expectations require a greater shift to online portals and a requirement to be able to transact/service funds directly.
Hamilton-Russell explains that this increases the importance for transfer agents to add value to the end investors and asset managers, who are increasingly looking to their transfer agents to enable flexible, easy-to-use and brand-aware access to their funds.
“It means not only that transfer agents must ensure that their digital offering, whether facing retail investors or their advisers, reflects the brand values of asset managers, but that their digital offering and communication must also be accessible. They must enable asset managers to deliver regulatory documentation and engaging supplementary fund information, cost effectively, to build and enhance positive client relationships and in turn understand the profile of their investors”, says Hamilton-Russell.
He suggests that the successful transfer agents of tomorrow will be those most adept at delivering enhanced digital service solutions, whether developed in-house or achieved through partnering with external tech providers, to support the rapidly changing fund distribution landscape.
Meanwhile, amid intense cost pressure and demand from clients for a more extensive range of services, Casalegno says that transfer agents will need to deploy smart technology on an ongoing basis in order to service clients or weigh up the risks and rewards of providing services.
Casalegno comments: “While a competitive environment that delivers value for money to clients and their investors is healthy, it’s also important to be able to define what is being provided and at what cost during new business negotiations and in-service reviews.”
“If there is a gap between the client’s service expectations and what is delivered, the disconnection will sour the best of relationships. Currently, the quality aspect of service is not prominent enough on the agenda of transfer agents and clients negotiating the cost of service”, she adds.
Turner explains that in order for transfer agents to adapt to the constantly changing, they need to have great flexibility. She notes that breadth, depth and flexibility to support all investor types and distribution channels, new fund types, asset classes and multiple fund ranges across different domiciles is important.
However, she says: “At the same time, transfer agents need to be able to deal with technological evolution, regulatory changes and investor preferences.”
Concentration of transfer agents
With increasing levels of manpower and cost associated with regulatory compliance, has it become difficult for smaller transfer agents to keep up?
There is no doubt that regulation has increased across the financial industry, particularly following the global financial crisis, resulting in significant investment in technology and resources to ensure compliance. Banfield says this will “undoubtedly place significant burden” on smaller transfer agents as they invest to keep up.
He adds: “The industry has already undergone a period of consolidation leaving a relatively small number of service providers. That said, the burden is increasing and further consolidation may well occur.”
However, Hamilton-Russell suggests that there have also been some larger asset servicers who take the decision that transfer agency is not a service that adds significant value to their own shareholders and so they chose to focus on their core products of custody, depositary and administration services.
At the same time, Hamilton-Russell notes that there have been new market entrants emerging from the technology arena, whose strategy is focussed solely on delivering a service centred around technology.
While technology is playing an increasingly important part of the transfer agency industry there is still a requirement for human interaction and the investment this entails.
He says: “As a result, we envisage that while there may be some changes in the individual players in the transfer agency space, those providers who view transfer agents as a core proposition and recognise its importance in the asset management sector will go the distance.”
Casalegno explains that in order to maintain compliant up-to-date records for the same financial intermediary, whose risk profile might differ according to how it is assessed in business relationships with two different customers, poses various procedural problems, in addition to the frustration of having to explain the difference to the financial intermediary.
She states: “Until technological solutions are available to enable transfer agents to manage these complex issues, size will have limited impact on market strength – regulatory risk is likely to be a deciding factor.”
Next five years
The pace of technological development is not looking to slow down, and although the core role of the transfer agent has not changed, the adoption of new ways will be required to keep up with investors.
Hamilton-Russell notes that as funds become more commoditised and asset managers find it more difficult to differentiate their value and products, along with the rise in passive funds, the investor journey is going to continue to grow in importance.
He says: “It is going to become increasingly easy for investors to ‘shop around’ and express their dissatisfaction by ‘voting with their feet’. As a result, asset managers are going to have to have a laser-like focus on generating Alpha. Their reliance on a trusted partner to articulate and protect their brand, values and most importantly protect their clients, the end investors, is going to be ever more important.”
Having agile relevant technology, knowledgeable staff and a true partnership with asset management clients are going to be key for transfer agents over the next five years, according to Hamilton-Russell.
Elsewhere, Banfield suggests that as transfer agent services over to a digital service, the industry is shifting toward full dematerialisation through the removal of paper trades. This move will also provide more investment choice with investors benefiting from quicker electronic trade and settlement times whilst continuing to enjoy full membership rights.
He comments: “The issuance of paper will almost certainly reduce considerably as investors utilise modern technology and as corporate law moves to support companies wishing to drive good economic and social governance practices.”
Transfer agents had a much different agenda and list of priorities than they may have today, with the current COVID-19 pandemic. The coronavirus pandemic has resulted in most of the financial sector, including transfer agents, operating remotely, with most employees confined to their homes.
Casalegno believes this has highlighted the long tail of legacy communication methods, with delays in receiving original documents sent by post, instructions of various kinds that are still faxed from banking and wealth management systems, and documents sent via various telecommunication channels that lack provenance and whose authenticity would be unlikely to pass legal scrutiny.
She adds: “Over the next five years transfer agents will need to jettison their old technology and communication channels and identify new solutions that eliminate the cost and friction of outdated media that take a disproportionate amount of time to service and often result in disgruntled clients.”
“They will need to offer alternative communication solutions that are secure, intuitive to operate and demand minimum effort for adoption – remembering that clients are often asked to deal with solutions from multiple counterparties that are burdensome to install, maintain and operate. That’s hardly a recipe for success in the age of fintech.”
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