Philip Bowkley, managing director at Barclays, looks at the ongoing evolution of banking services and how they can add value to asset management businesses.
The asset management industry is in the midst of a fundamental period of re-shaping. It faces a sustained period of regulatory modification, changes in investor attitudes and significant shifts in geographical demand for products from the more mature US and European markets to new frontiers, including Latin America, Asia and Africa.
When confronted with such a diverse range of environmental challenges and uncertainty, like many other sectors and industries, focus tends to be on reacting to rather than engineering opportunities.
Specific evidence is illustrated by the pervasive view that change agendas and investment spend/resources are 80% to 90% allocated to crucial projects such as Retail Distribution Review (RDR), Foreign Account Tax Compliance Act (Fatca) and Key Investor Information Document (Kiid). Such is the enormity of spend and regulatory change that most information technology budgets are “locked down” until 2013 and beyond, thus just maintaining BAU. This represents a significant challenge at a time when there is margin compression and a demand for differentiation of service.
When faced with these challenges, a service such as corporate banking is seen as peripheral, with asset managers often leaving decisions to their chosen third-party administration provider. To some extent, the banks giving these services unwittingly encourage this by providing solutions that lack innovation and transparency. However, this is changing: there is greater value banks can give in helping respond to the “must-do” challenges faced today.
There are a number of ways modern payment solutions can improve straight-through processing (STP), reducing total expense ratios (TER) and the level of information for reporting and reconciliation. For example, Swift, Faster Payments, Single Euro Payments Area (Sepa), controlled funds cash settlement solutions, card acquiring and new e-commerce solutions which can replace traditional paper based payment methods.
Foreign Exchange services have also evolved since the implementation of cross-currency FX subscriptions and redemptions, and share class hedging. In a world where STP, TER and “best execution” are the industry’s mantra, many solutions do not fully utilise the significant investment that banks have made in automation, transparency and interchangeable platforms. Asset managers need to ensure solutions evolve at the same pace as industry innovation to realise the full benefits on offer.
Areas of banking innovation and new product development such as mobile commerce, electronic wallets, loyalty cards and sophisticated fraud avoidance and detection, should feature high in discussions with corporate banking providers, due to the potential to reduce costs, complexity and fraud.
In an environment where resources are prioritised to regulatory projects, new technologies can encourage retail investors to allocate more of their wallet to savings and investments.
We are in a period of significant change and the asset management industry needs to become more innovative in evolving their target operating models to not just meet the “must-do” agenda but to reduce their TER and position themselves for growth.
Corporate banking services are evolving and play a valuable role in helping asset managers and transfer agents react effectively to the challenges faced. By maintaining dialogue and working closely together, both parties can realise the added value that innovative and relevant solutions can provide.
Philip Bowkley and his team in London and New York provide banking solutions to asset managers, private equity firms and transfer agencies
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