Oracle’s global head of solutions, Richard Clarkson, charts the evolution of the transfer agency model from its simple beginning to its digital future.
1: Fantasy land – Once upon a time in a land of joy and wonder, an Asset Manager (AM) woke up in the morning and glanced at the news knowing that their investors were happy and content with the service they received. They did not need to worry about their Transfer Agent (TA) partner as they knew there were happy investors across the globe.
The AM was assured of seamless interactions with all investor types, through whichever channel or medium the investor chose. They also knew their clients were looked after irrespective of the region of the world in which they lived.
At the same time, on the other side of town, the TA woke, well rested from a night of perfect slumber, realising that there had been no alerts overnight. They knew that the AM too would be happy as their clients had received the service that they had expected.
BANG! Reality bites as both the TA and AM return to reality and the year 2020.
2: The good ol’ days (TA 1.0) – However, they both remember the early days of TA, a process that had grown from a small and fractured beginning. A simple requirement to record investors and transactions has evolved into a critical piece of the financial services industry.
TA was formed for the need to always have that book of record for each investment made by an investor in a fund. Funds were initially employed by a small group of institutions and individuals. Fund product ranges were comparatively simple with choice limited.
As a result, TA was seen as part of the AM’s competency. Initially it was seen that the use of basic tools such as Access and/or Excel was sufficient as this could manage the records. Service to investors was maintained by the AM and their teams for those that had invested in the fund. Oh, how the landscape looked back then!
3: Regulatory relaxation and technology growth (TA 2.0) – Then governments – keen to expand people’s savings profile for retirement and to leverage the pools of monies in funds – loosened saving tax regulations, encouraged investment and opened the doors to a new wave of investors. Suddenly, investing in funds became ‘normal’ and the cottage industry of TA had to grow up fast and a new range of products evolved to meet the wide spectrum of investors.
Regulators also redefined funds’ operating framework, from which it was then possible to create a wider array of fund products distributed globally. The success of the Ucits brand that launched went far beyond the expectations of all in the industry.
At the same time, technology made huge strides, particularly with the birth of the internet. Data creation and capture and public consumption of information entered a new age. The AM now needed to focus more on fund product and distribution models, and, as a result, they looked for a partner who had the technology and scale to provide the TA service.
At the same time, service providers recognised they could bring value to the AM as they had the scale, knowledge and technology to support TAs. The AM could focus on the front office while the service provider cared for the back office of the fund.
4: Spaghetti (TA 2.0) – As technology continued to evolve, both the TA and AM knew they had to keep their systems modern, scalable, robust and secure. Managers and TAs alike moved into new product lines and new markets.
This, though, led to a divergence as AMs required tailored solutions to cater for their unique proposition in each market, whereas TAs played catch-up to find solutions that could continue to deliver to the AMs.
Over time, TAs found that they had a myriad of systems to answer each market and product ask of the AM. Systems too had not evolved easily, with legacy platforms requiring tactical approaches to address demands from AMs and regulators.
The tactical approaches became embedded and so running the business, making change and delivering quality requires significant investments for little or no return. Then, after years of underinvestment, the nest of platforms has become so nested and entwined that no one is certain how to simplify the ecosystem and get it future-ready.
Data and digital engagement will drive the successful AM, and by extension the successful TA. Those TAs that can offer a rationalised, single-solution approach for their clients will reap the benefits of their early-adopter process.
Other TAs may find solace in either their legacy but functioning platform (focusing on a single market) or in their tangled web of platforms that provide a pseudo pan-regional solution, but their client will not. Masking the problem with even more tactical solutions will eventually lead to a collapse of the house of cards.
5: Investors change the TA paradigm (TA 3.0) – Addressing the need for digital requires an honest appraisal of where the TA and AM want their partnership to go. The evolution of the TA model has meant that they now act as the AM’s point of contact with investors, and not the AM.
However, AMs see that investors are now more discerning and are keen to tap into a wider range of products that are offered within the same management firm. Therefore, the AM wants to simplify the relationship and minimise painful and potentially redundant processes whilst also ensuring that private data is well protected.
As investors have a more global outlook, they will expect the same service from the AM irrespective of the region of the globe they are in. Currently, this places huge demands on legacy TA systems and processes to present themselves as digitally ready and available.
But do not feel the pressure of legacy – the utopian opening that we started with is actually not that far from reality. Digital investor demands are growing, and as the demographics move to the nomadic digital native and beyond, AMs need to speak to their future market.
6: Can fantasy become a digital reality? (TA 3.0) – Digital will continue to disrupt the industry. However, it seems that AMs still find it hard and costly to fulfil the TA process. Therefore AMs are keen to get it done through their TA partners in the most cost-effective way. But how, when TAs have a myriad of platforms that make up a ‘solution’?
The answer might seem too obvious to be true, but true it is – and that is to work with TAs that have a single-solution approach with a common operating model. This can happen where solution simplification is considered and undertaken by the brave TA. Taking an honest assessment of the current ecosystem with its multitude of platforms can force the TA to course-correct and work with technology partners that can provide them with a true solution to address their needs across the globe.
Modern TA solutions, such as Oracle FLEXCUBE Investor Servicing, will have the capability to support out-of-the-box digital channels with open APIs, blockchain connectivity options and data points to help with machine learning.
With a robust solution, it helps to ensure that the above is delivered in alignment to regulatory compliance (GDPR, PIPA et al) and, more importantly, deliver to the emerging global TA service expectations.
7: Renewal (TA 2.0 or TA 3.0) – And so, in 2020 we have seen, with the Covid-19 pandemic, a step change in how the world operates. The changes that occurred were unforeseen, quick and profound. This has driven a new assessment of what best-of-breed means and looks like.
How, then, to move forward in this brave new digital world for funds? Are TAs supporting AMs on their digital revolution? Can TAs provide a truly scalable global solution that is market-agnostic, digitally enabled and on the cloud?
Both TAs with their overly complex eco systems and AMs with the urgent need to be digitally native are recognising that a true global system is required. However, renewing existing platforms may seem to offer instant benefit but longer term returns are not certain and existing perceived benefits lost.
Oracle FLEXCUBE Investor Servicing can help to make the digital change that can be cash flow neutral, enable pointed cost reduction and provide uplift in value with its unique support of true global TA and offering choice of on-premise deployments or on the cloud.
Therefore, ask yourself – do I stay in TA2.0 with my spaghetti nests and constant renewals of my patchwork solutions, or do I move to TA3.0, based on an open architecture, API-enabled and cloud-based solution that caters for local, regional and global TA and Fund Distribution?
Smart TAs and AMs have started the move. Can you afford to be left behind?
© 2020 funds europe