Transfer agents adapt to changing technology

It is no secret that the level of technology adoption within the transfer agency business leaves much to be desired. The pricing of transfer agency services has typically been structured around the premise that processing will require a high degree of manual intervention. But this model cannot resist the force of change for much longer. Ongoing consolidation in the investment industry and increased competition in the market from multi-fund distributors has forced transfer agents to face up to the reality of technological evolution. Jim Clark, head of transfer agency products at JPMorgan, is a champion of standardisation and suggests much can be learned from the custody side of the business. “The traditional siloed model of business is changing, but how do we maintain revenue in this changing environment? Transfer agency has become a marginal business and operational risk has become a key issue – in order to deal with this we must focus on the financials. Cost reduction is essential,” he explains. Standardisation This cost reduction can most easily be achieved via the introduction of automated processes and standardisation, in much the same way as the custody business began evolving 10 years ago, he adds. Mike Boardman, director of retail operations Emea at Blackrock Merrill Lynch Investment Managers, seconds the call for standardised automation from the point of view of a customer: “We are not getting value for money from our transfer agents – we have to deal with seven transfer agents across seven different systems – there needs to be more benchmarking and standardisation. The fact that there are two versions of ISO [15022 and 20022] is also confusing.” Philippe Seyll, head of investment fund services at Clearstream, agrees: “It is OK when you deal with two or three transfer agents but becomes a nightmare when you deal with 20 or more. Each relationship is thus technically different and expensive to manage and maintain.” Moreover, automation rates are continuing to go down due to Asian trades, which are fax heavy and involve more work to process, adds Mr Boardman. However, it will not be such an easy proposition to introduce standards and a consolidated technology platform across the region due to the idiosyncrasies of the markets. Richard Willis, global senior product manager at Bank of New York Mellon Asset Servicing, highlighted the issue at this year’s International Transfer Agency Summit (ITAS): “Asia is Europe times 10 in terms of the complexity due to different languages, currencies and market practices.” Regardless of the difficulties, Mr Clark believes the transfer agency community must step out of the “dark ages” of manually intensive business and invest in systems and processes to achieve higher rates of straight through processing (STP). “STP means a reduction in mistakes but it also allows transfer agents to focus on value added services,” he explains. Rather than being tied up with dealing with areas such as manual exception handling, staff are able to be redeployed to add value to their customers’ businesses. Laurence Mumford, retail chief operating officer at M&G International Investments, asked ITAS delegates to compare the experience of online shopping to that of transfer agents’ customers. “It is a long, long way from two clicks of a button for those trying to buy mutual funds,” he said. It is not just transfer agents that need to invest. Lieven Libbrecht, director, investment fund product management at Euroclear, explains: “The relatively low rate of automation for the industry as a whole is also partly due to the buy side. If we talk about processing, it is often the distributor community as originator of the transactions that drive automation. Here, we find that especially the small to medium-volume distributors still consider the business case for automation insufficiently attractive. To increase the level of automation in the coming years, the industry may have to look at how to implement incentives for these distributors.” The work of Swift has gone some way to tackling automation, says Mr Clark, but much is still to be done. The cost of connecting to the financial network has traditionally been seen as prohibitive for the smaller players in the market. Jean Sonneville, managing director, fund and investment management, Swift, highlights the work that the industry body is doing to extend its reach into the asset management community in particular: “The focus of Swift in 2008 is to increase the reach of Swift to the smaller players. There are two main challenges to this: the cost and the complexity. These will both be dealt with in our Swift ‘lite’ version.”

Libbrecht: ‘Incentives for distributors’