An evolving space
18 Aug 2021
In the past, transfer agents were slow to react to advances in technology, but now they are embracing changes such as investor portals and data analytics in an evolution that is expected to continue over the coming years. Experts discuss this and more in our panel discussion
Image: leonid_andronov/stock.adobe.com
Justin Hayes, global product manager, transfer agency, Linedata
Steven Caluwaerts, director, global distribution and transfer agency, securities services, HSBC
Nick Wright, CEO, SS&C Global Investor and Distribution Solutions
Kate Webber, global product lead, fund services at Northern Trust
What trends are you currently seeing within the European transfer agency market?
Nick Wright: We see several interconnected themes emerging throughout SS&C’s Global Investor and Distribution Solutions (GIDS) business across the UK, Luxembourg and Ireland. Asset managers increasingly view transfer agency (TA) as their interface to distributors and investors. Client experience is a key theme, and organisations are seeking to simplify and optimise the end-to-end experience. As a result, there is a desire for greater service efficiency, notably faster investor onboarding, know your customer (KYC), anti-money laundering (AML), know your distributor (KYD) and reporting.
Many asset managers using super-management company (ManCo) structures are increasingly looking to distribute funds from different fund domiciles into a single target market. Such movements often follow mergers and acquisitions (M&A) or the need to rationalise overlapping fund ranges. These structures require a more cohesive distribution support model with standard onboarding, dealing, settlement, statements and retrocession functions across multiple domiciles.
Transfer agency evolved from registration and dealing services to embrace market entry and distribution support at the turn of the century. The next phase increasingly sees TAs providing distribution analytics and intelligence to help asset managers identify opportunities and threats to asset gathering and retention. Central to these developments is a growing understanding of the considerable value hidden in buried data that already exists throughout asset managers’ business. For example, building and maintaining a client book of record (CBOR) and analysing it in combination with broader market data will enable asset managers to elevate the investor experience. The next step will be delivering data in much shorter time frames, to be used in near real-time, to inform investment decisions.
Steven Caluwaerts: We have seen an acceleration of digital transformation combined with some slowdown in regulatory changes due to the impact of the pandemic. Similar to the wider asset management community, TAs are using technology and more automation to enhance the client experience. Partially driven by digitisation but also because of the pandemic, a lot of TAs are exploring new ways of working with a more flexible operating model. Another trend is an increased commercial activity among asset managers looking to optimise their operating model for the distribution of their funds.
They are looking for an enhanced shareholder experience, consolidation of activities, higher levels of automation, and access to new markets and distribution channels. ‘Global TA’ is generating a lot of interest in the market as well.
Justin Hayes: COVID-19 has accelerated a greater push for the digitisation of the TA market. Millennial ‘digital native’ investors are certainly driving this change in expectations, but investors of all ages are demanding greater transparency, 24/7 access to information, and even the ability to trade. This has meant the demand for investor portals has grown significantly. Funds are increasingly complex, fund managers are looking to glean insights from investor data and trading patterns, and systems need to accommodate this two-way flow of information. All of that comes at a cost in a very competitive industry with increasingly depressed margins.
Kate Webber: TA is recognised as a key function forming part of the entire end-to-end service provision. It is the point where the asset managers meet their clients. At an industry level, bringing the legacy technology stack up to date to facilitate future trends is of key importance. This can be covered in two broad categories — the provision of near or real-time data in meaningful ways; and, secondly, services that are akin to those offered to clients in other industries, from banking to telecoms. We anticipate TAs offering a broader range of services to distributors across Europe or linking with existing service providers in a seamless way, including application programming interfaces (APIs).
How are the transfer agency needs of asset managers changing? Are providers keeping up?
Caluwaerts: Asset managers consistently want good quality service at a competitive cost through increased automation and self-service tools. Nowadays, that expectation translates into an enhanced shareholder experience for them; a wider range of TA service offering, both geographically (by fund domicile and countries of distribution) as well as thematically (by traditional funds, pension funds, private equity, exchange traded funds, or ETFs, environmental, social and governance, or ESG, funds, and so on); and enhanced support to the asset manager in the oversight of their distribution network. These services are expected to be delivered with a high level of automation at a competitive price.
In general, providers are meeting asset managers’ requirements, although we are seeing few administrators developing a globally consistent service offering across multiple fund domiciles. A substantial portion of existing administrators are focusing on one or a couple of key markets.
Wright: SS&C has been delivering TA to asset managers for more than 30 years. However, the pace of change continues to accelerate. The speed of change is primarily driven by the cost of doing business and downward pressure on fees, regulation, new technology, new fund types and instruments, distribution patterns, and the need to continuously improve client experience. All of these trends have led to the need for continuous digital transformation in the asset management space.
COVID-19 restrictions have brought on the need to finally and fully do away with paper-based servicing models: faxes, wet-signatures on documents, the receipt and issuance of cheques, paper-based contract notes, and statements. As a result, SS&C has invested heavily over the last five years in digitising the service and reporting models to investors, distributors and asset managers themselves. These digital layers enable a much greater self-servicing, act as a 24/7 buffer over legacy underlying register systems and allow more seamless servicing across multiple fund ranges and domiciles.
The next generation of robotic process automation will increasingly harness artificial intelligence (AI) to automate complex but repetitive processing activities and decisions, freeing transfer agency staff to focus on higher-value investor and distributor-facing activities.
Webber: Asset managers are looking at technology both to manage costs and to create service excellence to support their fund distribution, investor onboarding and other activities pivotal to their ability to retain clients and grow.
This means, for example, using data and digital technology to allow an investor to visualise all their investments in a single place, or provide a distribution team with the real-time valuation status of every investor in their funds. At Northern Trust, we have developed our enhanced digital technology platform, Northern Trust Matrix, to deliver these types of experiences for our clients and their investors, which represents a move to increasing automation across the industry.
Hayes: The TA function is more relevant now than ever as the investor experience is of huge importance. Heightened regulatory focus on transparency and money laundering means TA services are constantly under evaluation. Additionally, investors want to access information in real time and with greater transparency. Some investors, such as those invested in private equity, require more granular details in their reporting. They want to understand why the investment is going ahead, the particulars behind it, and very detailed holdings reports. Due to cost pressures, there is a greater need for automation and movement away from the archaic methods of postal mail and fax.
For some years, there has been a perception that TAs will be replaced by technology, but today TAs are still very present. How are transfer agents affected by new technological developments?
Hayes: Transfer agents have struggled to remain profitable in a market with low margins, and we have seen considerable consolidation, but the TA function is more relevant than ever due to the importance of the investor experience and the TA’s role in regulatory compliance. The transfer agent’s expertise is of huge importance in providing investors with access to information in an efficient, compliant manner, and technology will play an important role in making sure this happens.
Caluwaerts: The transfer agent is the face of the fund to investors. Although the interaction between the fund and the investor might change, there will always be a requirement for the fund to maintain a shareholder register and to service those shareholders.
What we are seeing in reality is TAs embracing technology to evolve their platforms to a more digital service offering and most asset managers preferring that model, rather than a fully automated service using distributed ledger technology (DLT) that replaces the TA role.
‘Disruptive’ technologies are being explored by both existing TAs as well as aspiring service providers for future needs, but the impact would be across the entire distribution chain and not just the TA itself.
Wright: Over the years, SS&C GIDS has proven remarkably adaptable in adjusting to changing market needs and accommodating new participants and service models into the value chain, such as order routers, aggregation platforms or central security depositories. In recent years, the often-cited ‘disruptor’ technology has been blockchain and DLT, seeking to offer more efficient ‘tokenised’ fund distribution and settlement.
SS&C is involved in several such DLT initiatives, and while there are potential efficiency gains, the legal and regulatory requirements tend to make these more marginal than transformative. Moreover, DLT seems to work best when trading is between a known and already trusted set of participants and limited underlying market liquidity. As a result, DLT tokenised fund models may find a more natural home in servicing institutional investors for the proposed UK Long-Term Asset Fund (LTAF) market than servicing retail investors.
SS&C recently announced our Lyric platform to enable our ecosystem to leverage such new technology further, whether AI, machine learning (ML), DLT, or robotics. The intent is to move recordkeeping and services to a cloud-hosted infrastructure that is data-driven and operates globally in a move away from the historic batch processing. We believe we should, and will, continue to disrupt our operating model for the benefit of our clients.
Webber: Transfer agency is now more pivotal than ever, both in terms of data provision and connection with the investor. We see asset managers choosing asset servicers who have modern architectural foundations for their technology stack, where they are able to incorporate new technology developments and react quickly to change. Microservices, and the ability to incorporate these into an overall service model, are seen to be critical in developing the best service solutions. Operating in a heavily regulated environment and reacting to continuous change are seen as necessary attributes.
How are transfer agents adapting to an ever-changing market?
Webber: At Northern Trust, we are digitalising our business to deliver accurate, reliable, real-time data, and using the power of digital technology to provide that data in whichever format clients wish to receive it. We are continuing to roll out this functionality via our Matrix platform for European TA clients. Data is fundamental to the future of our industry, both for effective decision making by asset managers and their clients, but also to service the future needs of our regulators. It is about relevant and usable data for our clients.
We are also seeing the emergence of cryptocurrencies as an asset class both within hedge funds and exchange-traded notes. While highly volatile, they are seen to be an important investment option for many institutions and retail millennials and, therefore, important to service for the immediate term. As these asset types evolve, they will be one to watch.
Wright: Globalisation is a key trend. Many of our clients continue to consolidate their TA relationships to a single provider across fund ranges and regions. The benefits are increased standardisation, a more direct customer experience and a seamless distribution effort. At SS&C, we differentiate ourselves by offering a truly global TA solution.
Another area of adaptation is the increased servicing we are offering to the wealth, insurance and life and pension business. Being part of SS&C Technologies enables us to provide integrated end-to-end solutions, not just TA.
Caluwaerts: The only constant is change. Any professional TA has been managing significant changes over the last decade and has proven it has the structure to adapt to an ever changing market.
Justin Hayes: Over time, TAs have improved their operational processes by using automation and embracing digitisation to remain competitive. It is a highly cost-sensitive sector, so in the past many firms have been reluctant to invest in technology or change long-established processes. However, a range of factors — from the ubiquity of online banking and e-commerce, to a younger pool of investors, and most recently the pandemic — has tilted the playing field. I believe we now are seeing substantive changes and those firms that have moved assertively are reaping the benefits.
What other challenges are European TAs facing?
Webber: Regulatory change can be both a challenge and an opportunity. In gathering the data for the regulator, we also should look at how we can use the same information to improve other outcomes for asset managers and investors. Adapting to future hyper personalisation will be a key requirement for the future, but one that may emerge slowly. There are still a number of investors who have not chosen to adopt digital tools at this time. Digital servicing is important, both for attracting new clients and managing costs, so understanding how to improve adoption rates is important.
Wright: One of the biggest challenges facing European TAs is the limited way many have been looking at the TA business. Today’s transfer agents do not just provide registration and dealing services — they need to be a true distribution partner, providing a core and differentiated part of their overall proposition. A true partner should be able to support you through a crisis such as the recent COVID-19 pandemic. At SS&C, for instance, we leveraged our technology to provide extra capacity to our clients. At the same time, we reconfigured clients’ systems and shared best practices for business continuity to help clients train staff. A true partner needs to continuously invest in adopting the latest technologies to improve the offering, enable a controlled risk environment, and constantly improve its ability to support all channels. SS&C is continuously thinking about and tackling these challenges.
Hayes: In short, it is cost, regulation, and complexity. Cost is a huge challenge due to the competitive market. TAs need to grow their book of business without a linear rise in costs, so they need to automate as much as they can. Cutting costs is critical to make that margin, which is why forward-thinking firms are investing in straight-through processing (STP), automated reporting tools and investor portals for quick communication and information sharing. Staying on top of regulatory changes and ensuring compliance is another hurdle. AML/KYC rules are particularly tricky, as TAs need to deal with variations in regulations between each jurisdiction, and each new regulatory update brings with it with greater stringency. But as money launderers are adapting and becoming more sophisticated year-on-year, these new directives are critical to ensure AML standards remain a step ahead. There is a lot of pressure on fund administrators to have the right procedures in place, or risk fines and reputational damage. Institutions are therefore keen to go above and beyond the regulatory requirements. A third factor is fund complexity. The ever-changing fund environment and the rise of hybrid investment products presents an array of operational and reporting challenges. There are huge costs involved to ensure that systems are enhanced to cater for fund administration, data flows, and detailed regulatory and investor reporting requirements.
Steven Caluwaerts: For the main, TAs are constantly looking at improving the customer experience, operational efficiency and delivering new digital capabilities to clients and their investors. The challenge is doing that in practice, while onboarding new clients, keeping their current clients content and managing regulatory change.
As elsewhere, European TAs have adapted, and are adapting, to new ways of working because of the pandemic, including working from home and now moving to a hybrid model of working.
Do you think there should be more interaction between smaller fintech and TAs? And why?
Webber: Absolutely. Fintechs often focus on specific but valued challenges and overcome them well. Recent research by Temenos showed that asset managers are looking to avail themselves of a wider set of technology services offered by fintechs. Conversely, they are also looking to manage a smaller number of vendor relationships. This dichotomy can be solved by asset servicers creating those relationships and incorporating key elements and features from fintechs into their overall service provision.
Caluwaerts: Through industry forums, we already see these types of exchanges happening. While fintechs can solve a problem through their specific technology, TAs will typically have the depth and breadth of knowledge and capability that a fintech ordinarily would not. Fintechs and TAs can work together to introduce innovations into the distribution chain to the benefit of the whole funds industry.
How do you see the transfer agency role changing over the next five years?
Wright: Over the next five years in the TA space, the main battleground issue will be around the collection, collation, analysis and interpretation of data from a myriad of different sources for distribution, regulation, governance and oversight purposes. The ability of TAs to build on the data they have for each client, and across their broader client base, and to enrich it with data from external feeds will allow transfer agents to offer real Enterprise Data Management (EDM) services. Asset managers’ expectations will move from receiving data once a month to accessing this intra-day in real-time.
At the same time, service delivery models will change, and we anticipate increasing levels of cooperation and interoperability between TA providers. For example, as asset managers rationalise their fund range structures and domiciles and distribute these into an ever-increasing number of global markets, we will see the development of a sub-transfer agent market akin to the sub-custody market. Local or regional TA servicing would be selected and provided by the best equipped servicing agent. Then, the necessary details are fed in real-time to the principal register keeper in the fund domicile.
Hayes: In the past TAs have been very slow to react to advances in technology. However, recently they have embraced changes such as investor portals, API interfacing, process automation, and data analytics. I expect to see the same steady uptake over the next five years, along with a greater reliance on AI, ML and blockchain. The investor experience will be key, and both types of technologies will only enhance that, with AI/ML facilitating process automation, and blockchain enabling investors to deal directly with the fund rather than through a broker/distributor. Both technologies should also reduce the administrative burden around AML/KYC checks and processing.
Caluwaerts: There will always be a need to provide a high quality TA service offering to investors. However, the channels used for distribution are changing.
These are becoming more digital, so you will see mobile apps replacing legacy technology, for example. That evolution will mean the investor will experience much closer to real-time dealing and settlement, and a more personalised and more instant service.
In the not too distant future, we expect TA to be made up of microservices, which each provide an element to an ever-changing value chain, and then it will be packaged together to create a global model. There are opportunities both to develop these microservices using innovative technologies and to be more creative in packaging these together.
Some TAs might end up specialising in some specific market or in some specific microservices, but globalisation means global asset managers still require providers that can offer a global service to enable the efficient distribution of funds and a satisfying shareholder experience through the use of state-of-the art microservices.
We also expect technology giants to venture into the distribution value chain with a focus on the non-regulated microservices (such as trade capture or data analytics), but that is unlikely to be within a five-year time horizon.
Webber: Data will be the foundation of most activities, from AML to distribution to oversight. Asset managers will look to collaborate ever more closely with their transfer agents to make best use of the data that TAs can provide and tools they offer to help them understand and use this data.
For the transfer agent, being that first connection to a client’s investment data and getting that initial touchpoint right — capturing, recording and delivering information accurately and in real time — opens up further opportunities to deliver products and services to clients and to support them in exploring their future business priorities.
Nick Wright: A significant amount of innovative thinking around retail financial services products and propositions occurs in start-up fintech businesses, unconstrained by existing business models and often with younger and more forward-thinking staff. As a result, fintech has less to lose and is prepared to take higher risks than more established and regulated businesses. However, the difference in scale, mindset and timeframes establishes a meaningful dialogue between mainstream financial service providers and fintech businesses. Still, initiatives such as TISAtech in the UK are beginning to create bridges between the two sides.
As a technology and service organisation, we embody the best of service and innovative technology. We review and adapt our operating model to incorporate the latest and greatest technology into our ecosystem. A recent example of this is our acquisition of Vidado, software that transforms handwriting, faxes, and low-DPI scans into digital text. We found the tech hugely valuable and have since integrated it into our workflow optimisation tools.
Steven Caluwaerts, director, global distribution and transfer agency, securities services, HSBC
Nick Wright, CEO, SS&C Global Investor and Distribution Solutions
Kate Webber, global product lead, fund services at Northern Trust
What trends are you currently seeing within the European transfer agency market?
Nick Wright: We see several interconnected themes emerging throughout SS&C’s Global Investor and Distribution Solutions (GIDS) business across the UK, Luxembourg and Ireland. Asset managers increasingly view transfer agency (TA) as their interface to distributors and investors. Client experience is a key theme, and organisations are seeking to simplify and optimise the end-to-end experience. As a result, there is a desire for greater service efficiency, notably faster investor onboarding, know your customer (KYC), anti-money laundering (AML), know your distributor (KYD) and reporting.
Many asset managers using super-management company (ManCo) structures are increasingly looking to distribute funds from different fund domiciles into a single target market. Such movements often follow mergers and acquisitions (M&A) or the need to rationalise overlapping fund ranges. These structures require a more cohesive distribution support model with standard onboarding, dealing, settlement, statements and retrocession functions across multiple domiciles.
Transfer agency evolved from registration and dealing services to embrace market entry and distribution support at the turn of the century. The next phase increasingly sees TAs providing distribution analytics and intelligence to help asset managers identify opportunities and threats to asset gathering and retention. Central to these developments is a growing understanding of the considerable value hidden in buried data that already exists throughout asset managers’ business. For example, building and maintaining a client book of record (CBOR) and analysing it in combination with broader market data will enable asset managers to elevate the investor experience. The next step will be delivering data in much shorter time frames, to be used in near real-time, to inform investment decisions.
Steven Caluwaerts: We have seen an acceleration of digital transformation combined with some slowdown in regulatory changes due to the impact of the pandemic. Similar to the wider asset management community, TAs are using technology and more automation to enhance the client experience. Partially driven by digitisation but also because of the pandemic, a lot of TAs are exploring new ways of working with a more flexible operating model. Another trend is an increased commercial activity among asset managers looking to optimise their operating model for the distribution of their funds.
They are looking for an enhanced shareholder experience, consolidation of activities, higher levels of automation, and access to new markets and distribution channels. ‘Global TA’ is generating a lot of interest in the market as well.
Justin Hayes: COVID-19 has accelerated a greater push for the digitisation of the TA market. Millennial ‘digital native’ investors are certainly driving this change in expectations, but investors of all ages are demanding greater transparency, 24/7 access to information, and even the ability to trade. This has meant the demand for investor portals has grown significantly. Funds are increasingly complex, fund managers are looking to glean insights from investor data and trading patterns, and systems need to accommodate this two-way flow of information. All of that comes at a cost in a very competitive industry with increasingly depressed margins.
Kate Webber: TA is recognised as a key function forming part of the entire end-to-end service provision. It is the point where the asset managers meet their clients. At an industry level, bringing the legacy technology stack up to date to facilitate future trends is of key importance. This can be covered in two broad categories — the provision of near or real-time data in meaningful ways; and, secondly, services that are akin to those offered to clients in other industries, from banking to telecoms. We anticipate TAs offering a broader range of services to distributors across Europe or linking with existing service providers in a seamless way, including application programming interfaces (APIs).
How are the transfer agency needs of asset managers changing? Are providers keeping up?
Caluwaerts: Asset managers consistently want good quality service at a competitive cost through increased automation and self-service tools. Nowadays, that expectation translates into an enhanced shareholder experience for them; a wider range of TA service offering, both geographically (by fund domicile and countries of distribution) as well as thematically (by traditional funds, pension funds, private equity, exchange traded funds, or ETFs, environmental, social and governance, or ESG, funds, and so on); and enhanced support to the asset manager in the oversight of their distribution network. These services are expected to be delivered with a high level of automation at a competitive price.
In general, providers are meeting asset managers’ requirements, although we are seeing few administrators developing a globally consistent service offering across multiple fund domiciles. A substantial portion of existing administrators are focusing on one or a couple of key markets.
Wright: SS&C has been delivering TA to asset managers for more than 30 years. However, the pace of change continues to accelerate. The speed of change is primarily driven by the cost of doing business and downward pressure on fees, regulation, new technology, new fund types and instruments, distribution patterns, and the need to continuously improve client experience. All of these trends have led to the need for continuous digital transformation in the asset management space.
COVID-19 restrictions have brought on the need to finally and fully do away with paper-based servicing models: faxes, wet-signatures on documents, the receipt and issuance of cheques, paper-based contract notes, and statements. As a result, SS&C has invested heavily over the last five years in digitising the service and reporting models to investors, distributors and asset managers themselves. These digital layers enable a much greater self-servicing, act as a 24/7 buffer over legacy underlying register systems and allow more seamless servicing across multiple fund ranges and domiciles.
The next generation of robotic process automation will increasingly harness artificial intelligence (AI) to automate complex but repetitive processing activities and decisions, freeing transfer agency staff to focus on higher-value investor and distributor-facing activities.
Webber: Asset managers are looking at technology both to manage costs and to create service excellence to support their fund distribution, investor onboarding and other activities pivotal to their ability to retain clients and grow.
This means, for example, using data and digital technology to allow an investor to visualise all their investments in a single place, or provide a distribution team with the real-time valuation status of every investor in their funds. At Northern Trust, we have developed our enhanced digital technology platform, Northern Trust Matrix, to deliver these types of experiences for our clients and their investors, which represents a move to increasing automation across the industry.
Hayes: The TA function is more relevant now than ever as the investor experience is of huge importance. Heightened regulatory focus on transparency and money laundering means TA services are constantly under evaluation. Additionally, investors want to access information in real time and with greater transparency. Some investors, such as those invested in private equity, require more granular details in their reporting. They want to understand why the investment is going ahead, the particulars behind it, and very detailed holdings reports. Due to cost pressures, there is a greater need for automation and movement away from the archaic methods of postal mail and fax.
For some years, there has been a perception that TAs will be replaced by technology, but today TAs are still very present. How are transfer agents affected by new technological developments?
Hayes: Transfer agents have struggled to remain profitable in a market with low margins, and we have seen considerable consolidation, but the TA function is more relevant than ever due to the importance of the investor experience and the TA’s role in regulatory compliance. The transfer agent’s expertise is of huge importance in providing investors with access to information in an efficient, compliant manner, and technology will play an important role in making sure this happens.
Caluwaerts: The transfer agent is the face of the fund to investors. Although the interaction between the fund and the investor might change, there will always be a requirement for the fund to maintain a shareholder register and to service those shareholders.
What we are seeing in reality is TAs embracing technology to evolve their platforms to a more digital service offering and most asset managers preferring that model, rather than a fully automated service using distributed ledger technology (DLT) that replaces the TA role.
‘Disruptive’ technologies are being explored by both existing TAs as well as aspiring service providers for future needs, but the impact would be across the entire distribution chain and not just the TA itself.
Wright: Over the years, SS&C GIDS has proven remarkably adaptable in adjusting to changing market needs and accommodating new participants and service models into the value chain, such as order routers, aggregation platforms or central security depositories. In recent years, the often-cited ‘disruptor’ technology has been blockchain and DLT, seeking to offer more efficient ‘tokenised’ fund distribution and settlement.
SS&C is involved in several such DLT initiatives, and while there are potential efficiency gains, the legal and regulatory requirements tend to make these more marginal than transformative. Moreover, DLT seems to work best when trading is between a known and already trusted set of participants and limited underlying market liquidity. As a result, DLT tokenised fund models may find a more natural home in servicing institutional investors for the proposed UK Long-Term Asset Fund (LTAF) market than servicing retail investors.
SS&C recently announced our Lyric platform to enable our ecosystem to leverage such new technology further, whether AI, machine learning (ML), DLT, or robotics. The intent is to move recordkeeping and services to a cloud-hosted infrastructure that is data-driven and operates globally in a move away from the historic batch processing. We believe we should, and will, continue to disrupt our operating model for the benefit of our clients.
Webber: Transfer agency is now more pivotal than ever, both in terms of data provision and connection with the investor. We see asset managers choosing asset servicers who have modern architectural foundations for their technology stack, where they are able to incorporate new technology developments and react quickly to change. Microservices, and the ability to incorporate these into an overall service model, are seen to be critical in developing the best service solutions. Operating in a heavily regulated environment and reacting to continuous change are seen as necessary attributes.
How are transfer agents adapting to an ever-changing market?
Webber: At Northern Trust, we are digitalising our business to deliver accurate, reliable, real-time data, and using the power of digital technology to provide that data in whichever format clients wish to receive it. We are continuing to roll out this functionality via our Matrix platform for European TA clients. Data is fundamental to the future of our industry, both for effective decision making by asset managers and their clients, but also to service the future needs of our regulators. It is about relevant and usable data for our clients.
We are also seeing the emergence of cryptocurrencies as an asset class both within hedge funds and exchange-traded notes. While highly volatile, they are seen to be an important investment option for many institutions and retail millennials and, therefore, important to service for the immediate term. As these asset types evolve, they will be one to watch.
Wright: Globalisation is a key trend. Many of our clients continue to consolidate their TA relationships to a single provider across fund ranges and regions. The benefits are increased standardisation, a more direct customer experience and a seamless distribution effort. At SS&C, we differentiate ourselves by offering a truly global TA solution.
Another area of adaptation is the increased servicing we are offering to the wealth, insurance and life and pension business. Being part of SS&C Technologies enables us to provide integrated end-to-end solutions, not just TA.
Caluwaerts: The only constant is change. Any professional TA has been managing significant changes over the last decade and has proven it has the structure to adapt to an ever changing market.
Justin Hayes: Over time, TAs have improved their operational processes by using automation and embracing digitisation to remain competitive. It is a highly cost-sensitive sector, so in the past many firms have been reluctant to invest in technology or change long-established processes. However, a range of factors — from the ubiquity of online banking and e-commerce, to a younger pool of investors, and most recently the pandemic — has tilted the playing field. I believe we now are seeing substantive changes and those firms that have moved assertively are reaping the benefits.
What other challenges are European TAs facing?
Webber: Regulatory change can be both a challenge and an opportunity. In gathering the data for the regulator, we also should look at how we can use the same information to improve other outcomes for asset managers and investors. Adapting to future hyper personalisation will be a key requirement for the future, but one that may emerge slowly. There are still a number of investors who have not chosen to adopt digital tools at this time. Digital servicing is important, both for attracting new clients and managing costs, so understanding how to improve adoption rates is important.
Wright: One of the biggest challenges facing European TAs is the limited way many have been looking at the TA business. Today’s transfer agents do not just provide registration and dealing services — they need to be a true distribution partner, providing a core and differentiated part of their overall proposition. A true partner should be able to support you through a crisis such as the recent COVID-19 pandemic. At SS&C, for instance, we leveraged our technology to provide extra capacity to our clients. At the same time, we reconfigured clients’ systems and shared best practices for business continuity to help clients train staff. A true partner needs to continuously invest in adopting the latest technologies to improve the offering, enable a controlled risk environment, and constantly improve its ability to support all channels. SS&C is continuously thinking about and tackling these challenges.
Hayes: In short, it is cost, regulation, and complexity. Cost is a huge challenge due to the competitive market. TAs need to grow their book of business without a linear rise in costs, so they need to automate as much as they can. Cutting costs is critical to make that margin, which is why forward-thinking firms are investing in straight-through processing (STP), automated reporting tools and investor portals for quick communication and information sharing. Staying on top of regulatory changes and ensuring compliance is another hurdle. AML/KYC rules are particularly tricky, as TAs need to deal with variations in regulations between each jurisdiction, and each new regulatory update brings with it with greater stringency. But as money launderers are adapting and becoming more sophisticated year-on-year, these new directives are critical to ensure AML standards remain a step ahead. There is a lot of pressure on fund administrators to have the right procedures in place, or risk fines and reputational damage. Institutions are therefore keen to go above and beyond the regulatory requirements. A third factor is fund complexity. The ever-changing fund environment and the rise of hybrid investment products presents an array of operational and reporting challenges. There are huge costs involved to ensure that systems are enhanced to cater for fund administration, data flows, and detailed regulatory and investor reporting requirements.
Steven Caluwaerts: For the main, TAs are constantly looking at improving the customer experience, operational efficiency and delivering new digital capabilities to clients and their investors. The challenge is doing that in practice, while onboarding new clients, keeping their current clients content and managing regulatory change.
As elsewhere, European TAs have adapted, and are adapting, to new ways of working because of the pandemic, including working from home and now moving to a hybrid model of working.
Do you think there should be more interaction between smaller fintech and TAs? And why?
Webber: Absolutely. Fintechs often focus on specific but valued challenges and overcome them well. Recent research by Temenos showed that asset managers are looking to avail themselves of a wider set of technology services offered by fintechs. Conversely, they are also looking to manage a smaller number of vendor relationships. This dichotomy can be solved by asset servicers creating those relationships and incorporating key elements and features from fintechs into their overall service provision.
Caluwaerts: Through industry forums, we already see these types of exchanges happening. While fintechs can solve a problem through their specific technology, TAs will typically have the depth and breadth of knowledge and capability that a fintech ordinarily would not. Fintechs and TAs can work together to introduce innovations into the distribution chain to the benefit of the whole funds industry.
How do you see the transfer agency role changing over the next five years?
Wright: Over the next five years in the TA space, the main battleground issue will be around the collection, collation, analysis and interpretation of data from a myriad of different sources for distribution, regulation, governance and oversight purposes. The ability of TAs to build on the data they have for each client, and across their broader client base, and to enrich it with data from external feeds will allow transfer agents to offer real Enterprise Data Management (EDM) services. Asset managers’ expectations will move from receiving data once a month to accessing this intra-day in real-time.
At the same time, service delivery models will change, and we anticipate increasing levels of cooperation and interoperability between TA providers. For example, as asset managers rationalise their fund range structures and domiciles and distribute these into an ever-increasing number of global markets, we will see the development of a sub-transfer agent market akin to the sub-custody market. Local or regional TA servicing would be selected and provided by the best equipped servicing agent. Then, the necessary details are fed in real-time to the principal register keeper in the fund domicile.
Hayes: In the past TAs have been very slow to react to advances in technology. However, recently they have embraced changes such as investor portals, API interfacing, process automation, and data analytics. I expect to see the same steady uptake over the next five years, along with a greater reliance on AI, ML and blockchain. The investor experience will be key, and both types of technologies will only enhance that, with AI/ML facilitating process automation, and blockchain enabling investors to deal directly with the fund rather than through a broker/distributor. Both technologies should also reduce the administrative burden around AML/KYC checks and processing.
Caluwaerts: There will always be a need to provide a high quality TA service offering to investors. However, the channels used for distribution are changing.
These are becoming more digital, so you will see mobile apps replacing legacy technology, for example. That evolution will mean the investor will experience much closer to real-time dealing and settlement, and a more personalised and more instant service.
In the not too distant future, we expect TA to be made up of microservices, which each provide an element to an ever-changing value chain, and then it will be packaged together to create a global model. There are opportunities both to develop these microservices using innovative technologies and to be more creative in packaging these together.
Some TAs might end up specialising in some specific market or in some specific microservices, but globalisation means global asset managers still require providers that can offer a global service to enable the efficient distribution of funds and a satisfying shareholder experience through the use of state-of-the art microservices.
We also expect technology giants to venture into the distribution value chain with a focus on the non-regulated microservices (such as trade capture or data analytics), but that is unlikely to be within a five-year time horizon.
Webber: Data will be the foundation of most activities, from AML to distribution to oversight. Asset managers will look to collaborate ever more closely with their transfer agents to make best use of the data that TAs can provide and tools they offer to help them understand and use this data.
For the transfer agent, being that first connection to a client’s investment data and getting that initial touchpoint right — capturing, recording and delivering information accurately and in real time — opens up further opportunities to deliver products and services to clients and to support them in exploring their future business priorities.
Nick Wright: A significant amount of innovative thinking around retail financial services products and propositions occurs in start-up fintech businesses, unconstrained by existing business models and often with younger and more forward-thinking staff. As a result, fintech has less to lose and is prepared to take higher risks than more established and regulated businesses. However, the difference in scale, mindset and timeframes establishes a meaningful dialogue between mainstream financial service providers and fintech businesses. Still, initiatives such as TISAtech in the UK are beginning to create bridges between the two sides.
As a technology and service organisation, we embody the best of service and innovative technology. We review and adapt our operating model to incorporate the latest and greatest technology into our ecosystem. A recent example of this is our acquisition of Vidado, software that transforms handwriting, faxes, and low-DPI scans into digital text. We found the tech hugely valuable and have since integrated it into our workflow optimisation tools.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
