Everyone needs a teansfer agent

Back-office boffins are promoting the latest technology designed to take over record keeping and other transfer agency tasks. Roxane McMeeken reviews their offerings.

Transfer agency (TA) was long-regarded as “something best left in a dusty cupboard at the back of the back office”, admits one insider at State Street, the world’s largest fund services provider. But with the changes currently taking place in Europe’s investment fund industry, everyone is suddenly talking about TA. The big question is whether to maintain in-house TA systems or to outsource. The increasing sophistication of the retail investor, lower interest rates and pension reforms all mean that the European mutual fund industry is growing exponentially. France, for example, has witnessed a stream of government initiatives to encourage individuals to start investing for themselves, including tax-friendly Pea accounts, 401k-style Épargne Salariale and PPSV employee savings plans. The UK similarly has personal equity plans, individual savings accounts and stakeholder pensions. Growing emphasis The fact that growing numbers of people are investing in funds directly or through personal investment advisers is putting particular emphasis on transfer agency – the business of managing records for both shareholders and fund managers and distributors. As transaction volumes rise and distributors go international, the impetus to outsource TA to dedicated providers is gathering momentum. Meanwhile, the pressure is on transfer agents to offer a truly international service. Two of the main providers aiming to do so are IFDS and Mutual Fund Technologies (MFT). Each has the necessary backing of heavyweight parent companies. IFDS is the fund administration joint venture between State Street and DST, while MFT is a subsidiary of Fidelity. There is one crucial difference between the two. MFT provides its clients with replacement technology in the form of its Global Fund Administration System (GFAS). IFDS provides the technology, but will also provide the personnel or hire some of the client’s existing people. But whichever route is taken towards outsourcing TA, for manufacturers and distributors of European funds, the benefits are numerous, according to Charlie Eppinger, chief executive of IFDS:

• Focus on core competencies: “People are now asking themselves, am I a fund manager, distributor or administrator?” he says. “Before, people thought they would outsource administration. Now, they are thinking about outsourcing distribution as well. Jupiter, Gartmore and M&G thought they were distributors, but now they have taken a stake in a fund supermarket (CoFunds) and are distributing their products through it.” IFDS recently took a stake of its own in the fund supermarket distribution business in the form of a 20 per cent holding in CoFunds. The fund administrator has an option to increase the stake to 30 per cent, which would make it the majority owner. IFDS is revamping CoFunds by bringing in its own administration systems.
• Pressure on operating costs: Companies that had never considered outsourcing are now thinking about it because their revenues have fallen so low, says Mr Eppinger. Also, the development of Charge Access & Terms (CAT) products – savings funds with very low fees – and similar schemes imposed by governments are driving fund companies to find new ways of cutting costs. Saving money was a key factor in Invesco Perpetual’s decision last month to transfer its onshore transfer agency operations onto MFT’s system, according to the mutual fund firm’s operating chief, Anthony Myers. lInvestment levels required to provide service: “Frequently people are faced with the need to invest due to – often unexpected – factors, such as the development of e-commerce or STP initiatives.” Outsourcing TA prevents these variables from playing havoc with the budget. M&G, a UK-based fund management firm, outsourced retail administration to IFDS late last year. The firm’s chief executive of UK retail said he expected his firm to “achieve annual cost savings of approximately Ł10m from 2004 as a result”. Mr Eppinger claims IFDS is able to invest economically, since it has multiple clients. So far the firm has spent Ł50m on its systems since launch in 1995. International capability MFT managing director David White agrees that TA should be outsourced, but he argues that it is crucial to find a TA with international capability. This seems likely to become increasingly important as Europe’s investment industry becomes a cross-border business. Mr White says: “GFAS is truly global. Many other transfer agency systems tend to be market-specific and designed for a single currency.” Need for sophistication Bob Milotte, another MFT director, adds that a good TA should have sophisticated modules, such as the GFAS call centre module. “If a customer calls up one of our representatives they have everything at their finger tips necessary to satisfy almost any enquiry. There are no call-backs, there is no need to tap into other systems and everything is on the same system.” Mr Milotte believes TAs need to be highly automated. GFAS, for example, boasts a “workflow” product that helps to maintain accuracy and speed when information is transferred. “A client sends in a paper-based application and cheque to one office. This is scanned into the system and an electronic image created. Regulations and compliance permitting, this image can then be processed by anyone, any-where who has access to the system. This enables processing to be carried out in the most cost-effective location.”

What is a transfer agency? In a nutshell, transfer agency is the business of smoothing the path between the fund manufacturer, the fund distributor – whether in or out of house – and the end investor. TA has traditionally been limited to keeping shareholder records and distributing dividends. But from these basic functions it has extended into corporate actions, settlement and registration, and running call centres for handling customer enquiries. Increasingly, TAs are responsible for workflow management and straight-through processing, Internet dealing and information systems, as well as online portfolio analysis services.