Funds Europe talks to Kate Webber of Northern Trust, winner of the Transfer Agent of the Year 2022 award, about the future of the transfer agency function.
The transfer agency function has been much debated in recent years. As the first point of contact for many investors, its role has sometimes been underappreciated. It has not helped that almost all asset managers have outsourced a function that used to be treasured as a vital part of the user experience.
But have the third-party asset servicers that have taken on the role been able to invest the necessary capital to keep their services fit for purpose? Have they been able to use new technology to improve their service?
New technology has become central to the TA function, namely blockchain and distributed ledger technology (DLT). Northern Trust was the winner of the Funds Europe Transfer Agent of the Year 20022 award, so we talked to Kate Webber, head of product strategy at Northern Trust, about the company's offering, the potential for using new technology and the overall role of the TA.
"The Matrix platform combines technology and operating model innovations to support new ways of managing and delivering data."
When the Funds Europe judging panel selected NT as transfer agent of the year, it remarked on the firm's investment in technology and commitment to innovation, as demonstrated by the rollout of its Fund Utility service to UK clients, a digital initiative designed to improve straight-through processing and information delivery.
According to Webber, Northern Trust applies "a focused business model at the centre of which are our clients and our core principles of service, integrity and expertise". This enables the firm to provide "exceptional service for our transfer agency clients, deploying both our knowledge and technology capabilities for their advantage".
The transfer agency offering is also one of the first Northern Trust products to use the firm's Northern Matrix data platform, built to help 'digitise' the asset servicing business, says Webber. "The Matrix platform combines technology and operating model innovations to support new ways of managing and delivering data. A dedicated investor shared service group powered by Matrix creates a differentiated investor experience, which will be further enhanced by digital portals that we are deploying," says Webber.
TA services are being developed for the digital-only investor who wants to do everything online, she adds. "We are moving to an age where investors will need key information to be available instantly. Our strategy is very much focused on being fully digital across transfer agency, and we believe this adoption is already underway and moving at speed."
This strategy means a greater focus on data visualisation in near-real time and enabling the TA platform to run fully digitally, from fund launch to investor account opening to the final settlement of a trade.
Data has also become critical to asset managers' ESG and sustainability requirements. The introduction of various disclosure regimes and reporting requirements has elevated the TA role, says Webber. "From a funds perspective, it all comes down to the data and an ability to track the ESG ratings. We see the transfer agency's role as a key in terms of providing data capture and information delivery. As keepers of the investor's data, there is potentially an ability for us to combine investor data and fund-level ESG data to create a personalised ESG rating based on an individual retail or institutional portfolio."
As stated, the TA is typically the first contact for the investor rather than the asset manager, so should not more be done to make the process more efficient and enable a better user experience? "First impressions are certainly critical in this business," says Webber. "The experience for an investor when onboarding into a fund needs to be frictionless and timely."
For example, says Webber, enabling the investor onboarding journey through portals ensures a smoother account opening process but also provides better transparency on their investments. "It is paramount that the onboarding process is streamlined and that the opportunity for investors to self-serve is at their fingertips. This can only be done by digitising the investor record-keeping and onboarding journey."
There is a discussion in the industry about having a shared AML digital capability, which could significantly streamline the AML/KYC process, exponentially reducing investor onboarding times, says Webber. "Having such a capability would require a community model whereby all participants in the community agree with the interpretation of those measures provided by the capability. Each participant would have their internal risk tolerances, which would still be in place, but the outreach for this data would be fully streamlined."
"It's worth noting the level of data the administrators are holding when consolidated across functions such as transfer agency, fund accounting and custody – using a transfer agency in this way can create better data insights for both the investor and the asset manager, which in turn can help drive better investment decisions."
Then again, is the importance of the user experience overstated? Is the TA an essential touchstone with the end client, or do investors want the administration of their investments to be as efficient and painless as possible, regardless of who is providing the service?
"Investors today want to have the same customer experience in asset servicing as they have with their own personal banking practices," says Webber. "To enable this, creating persona-based user experiences are foundational to meeting investor expectations. We need to understand what is – and isn't – important to investors regarding their touchpoints with their asset manager. Cost efficiency can only be realised by moving all key business events through the lifecycle of a trade into an automated process and spending time only on tasks that are business exceptions."
Clearly, technology is central to the future development of the TA and distributed ledger technology (DLT) especially, but the relationship between TA and DLT has been somewhat complicated. In the early days of the technology, when the blockchain was suggested to replace all the traditional and costly components in the funds processing lifecycle, the TA was top of the kill list.
But, as the technology has matured, is it still an existential threat or are TAs finding ways to use the technology to enhance their own offerings? "Through Northern Trust's digital transformation programme, we are creating an open architecture, event-driven data platform into which we can integrate our underlying engine and applications as well as client applications," says Webber.
"This also gives us the ability to integrate with one or, more likely, multiple DLTs, including our own asset-agnostic tokenisation platform. Whilst a DLT for transfer agency seems like a potential solution for the agent, we believe that the requirement to have all stakeholders accessing the same distributed ledger makes it unlikely in the short term."
"Creating persona-based user experiences are foundational to meeting investor expectations."
Connecting to multiple DLTs and enhancements in data transfer through APIs may be more impactful in the short to medium term, suggests Webber. "Our digital transformation programme shares many of the attributes of a distributed ledger with the concept of ‘golden source of truth’. This means that the data construct in the event-driven architecture is such that it enables 100% trust in the data elements that are critical to a successful and efficient platform."
But perhaps the greatest challenge for the TA is the fact that it is relying on other developments, such as the abolition of counterparties' legacy systems or the use of fax or the introduction of single digital identity initiatives, to achieve greater efficiency.
"The industry as a whole is focusing on providing a fully digital KYC lifecycle," says Webber. "We know the technology is available to have a single digital identity which can be used across funds and businesses. We have created a global investor concept within our transfer agency architecture which will significantly speed up the KYC process, reducing the need for multiple identities interacting across various fund ranges.
"Even where fax instructions are submitted, many semantic AI solutions can read and digitise the instruction into readable data, enabling automation and providing efficiency across the entire process. The reality is that whether via AI or robotic process automation, plenty of no-code, low-code and some-code solutions that are enabling efficiency across transfer agency."
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