Transfer agents are under more pressure than ever to provide lightning-speed solutions for increasingly complex funds. Angele Spiteri Paris reports ...In their quest for innovation, fund managers have rolled out complex products, but with little thought for transfer agents (TAs) – the people that have to process products for the underlying investors.
The TA’s job traditionally is to maintain shareholder records such as purchases and sales. But they are now expected to provide support for performance fees and fund passports, to name but a few tasks. TAs are under pressure to cope. No wonder fund managers outsource the task.
“The funds industry is not yet like the automotive industry, where production constraints are considered as early as conception,” says Christophe Lenschat, a product and sales head at European Fund Administration (EFA). “In our world, TA constraints are sometimes at the bottom of the priority list, with ideas and distribution issues coming out on top.”
It’s not that TAs don’t like their job, but there is distinctly a feeling that the world is moving slightly too fast for them to always react adequately.
Over the last few years TA has grown from simply a standard shareholder servicing function to something much bigger. For example, as well as calculating performance fees, they also have had to find methods of equalisation for shareholders entering a fund late.
George Weeks, product manager at Bravura Solutions, says: “The need for these complex calculations is an additional burden for TAs since we have to calculate these fees on a shareholder level.”
Fund managers may never take TAs into account and so it is up to the transfer agencies themselves to take matters into their own hands.
“It does, at times, take some knowledge transfer on our side,” says Josée Denis, global TA product specialist at BNY Mellon Asset Servicing. “We need to hand-hold our clients in order for them to fully ascertain that when they request a certain operational requirement, some may prove to be complex. They need to understand the specificities of such a requirement, be it industry-driven, regulatory or tax-driven.”
Matthew Brown, business development director of IFDS, says: “The onus is on us to make sure we’re helping and managing our clients through the process and making sure we’re asking the right questions.”
But he adds that fund managers also have the responsibility to keep their TAs involved. Brown says
that although IFDS has good relationships with its clients, fund managers do not always involve the firm at an appropriately early stage.
“There has to be more recognition by fund managers of how important TA is in the fund administration value chain,” BNY Mellon’s Denis says. According to Denis, the function of TAs is still underrated, considering that the fund industry would most probably not function without this essential component. “The fund industry
has been sustained all along by the TA function since its inception,” she says.
“I would certainly say the role of a TA runs the risk of being overlooked,” says Brian Pollard, head of TA at Northern Trust. “There are a lot of nuances that take place within TA which other parts of the fund business may not understand or even be aware of.”
Weeks, at Bravura, says: “We are an underrated yet absolutely vital part of the process.”
Mark Mannion, director of European operations for PNC Global Investment Servicing, says: “TAs essentially act as the communicators to all of the investors in the global fund market.”
As a consequence of being somewhat taken for granted, TAs are sometimes made to tie up the loose ends for the rest of the industry – particularly in terms of regulatory and legal changes.
Industry experts explain how their job description is constantly expanding, with several issues thrown up by new regulation.
One such example is the fund processing passport (FPP) developed by Efama, a trade body for European fund managers.
“It is likely that the TAs will have to assist in setting up and providing these fund processing passports,” says Lieven Libbrecht, director of investment fund product management at Euroclear. “Any additional task is a challenge,” he adds.
Regulators, too, may fail to consider the impact on TA of their rules.
An industry insider claims regulation is often drawn up without any thought for the fund administration cycle, particularly the role of the TA. Furthermore, little or no guidance is given about how regulation is to be implemented.
This leaves fund administrators having to acknowledge the impact on operations of regulatory changes, while scrambling for solutions to support these changes.
Denis, at BNY Mellon, says: “We’re not given much guidance, if any, in line with the growth in the fund industry as to how to tackle the corresponding regulatory developments from a pure operational standpoint. One must bear in mind that we have our day job as well!”
Clearly, regulatory changes require investment by the TA so as not to impinge on the smooth running of their business.
According to PNC’s Mannion, this investment need not be regarded as a burden. “If handled properly, regulatory changes can be turned into a revenue-enhancing opportunity rather than just be seen as more cost,” he says.
Chicken and egg story
Another bugbear of the TA industry is automation – or rather, the lack thereof. A survey carried out by Eurofi, a European think tank, revealed that only 50% of order processng tasks use automated systems, with faxes being one of the most common methods of settling transactions.
“There is a lot of pressure on TAs to reduce costs and be able to provide automated solutions,” says Euroclear’s Libbrecht.
However, the issue of automation leads to a few dichotomies.
“It is a kind of chicken and egg story,” says EFA’s Lenschat. “People will not really embrace automated systems unless they emerge as a standard and to emerge as a standard you need commitment from the distribution channels.”
There have been several initiatives to introduce a standard, but none have yet caught on. According to Lenschat, the road to a robust solution for the whole of the industry is a long one.
Automation suggests one solution embracing the whole TA industry, one that is relevant for all fund distributors. However, the bespoke service demanded by fund managers can be difficult to achieve without masses of investment.
According to Lenschat, the way forward lies in the concept of mass customisation. “This means we would try to work on an automated, industrialised basis, but with a customisation option built within the system.”
To get the level of automation needed, though, means getting the whole industry, including fund managers, to work together. And this, of course, is part of the a wider problem.
“The industry can only be efficient if people are prepared to get together and adhere to standards,” says Weeks, of Bravura.
“The only speedbump in this path is that although the TAs themselves seem to work hand in hand, bringing the rest of the industry parties on board is a different story.”
© 2008 Funds Europe