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Gain Insights into Current Trends and Challenges Impacting the Financial Services Industry

How will Transfer Agency continue to be relevant in the current Age of Disruption?

Richard Clarkson
Solution Consultant

With the profound changes happening across Financial Services due to rapid technological shifts, and regulatory reactions to various scandals, will Transfer Agency still be a function that is relevant to the industry? Transfer Agency has long been thought of as a cost of providing Fund Administration either in-house or through Third Party Administration, and the advances that are prevalent today can lead us to question if the process can be done more efficiently and cheaply than it is at present. 

Banks and Asset Managers feel that the process is cumbersome and a ‘must do’ activity rather than a ‘want to do’ activity.  This view is further entrenched within Third Party Administrators who see Fund Accounting and Custody as profit centres, and who are ‘forced’ to do Transfer Agency to win mandates from various Asset Managers.

Some are questioning if it is a function that will cease to exist[1] whilst others may look to see if it can be reduced or merged into another line of business.  What will the future Transfer Agent look like as technology continues to advance and people look to disintermediate traditional ways of doing business?

Since the start of the new century the world has gone through an unprecedented amount of technological change which has impacted us in ways that we did not foresee. What were once seen as stalwarts of various industries are now no longer in existence. New companies have taken technology and applied it in new and imaginative ways to disrupt and even derail physical industries.

At the end of 2000 we approached the end of the dot-com bubble as people rushed to all things Internet related.  Any company with an Internet address was hot property, irrespective of its business model and prospects. As history taught us many of these companies failed as the new technology was nascent and still to find its true calling, with entrepreneurs.

Fast forward 18 years and now we see the benefits of the Internet; but most of us would not have anticipated that we would be consuming this through a ‘telephone.’ The advent of the smart device has enabled a wholesale and rapid change in the way we engage with each other (social media); acquire goods and services (Amazon; Alibaba etc.) and how we get information and entertain ourselves.

The result of this has been profound with the world entering the Digital Revolution, akin to the Industrial Revolution, with its multi-faceted impact. The Age of Disruption is part of the Digital Revolution as entrepreneurs and others look to apply digital technology to all areas of our lives.

But what does the technological shift mean for Transfer Agency, will it remain a function that is required?  Or will the advance in change bring about the end of the function as we move on to more efficient processes?

It is important to remember that in of itself Transfer Agency can still be remembered as a book keeping process, wherein the Investors’ contact details, trades and holdings are captured and maintained.  Over time, as Investor and Asset Managers needs changed and the regulatory requirement increased the process became more complex and nuanced.

Given its increasing maturity and presence, Transfer Agency has become another layer of intermediation between the Investor and Fund Manager. Whilst, within the Industry we see each Function (Custody, Fund Accounting etc) as a value add service it must be remembered that to the Investor these functions extract costs from the overall Investment.

To maintain relevance and cost effectiveness, Transfer Agency must address many significant factors that impact its reputation as an unloved cost centre. This includes the speed and willingness to change; the product lines and investor types which are serviced; the underlying technology and ecosystem and the opportunity to provide an enhanced customer experience.

By addressing these and showing the value, the function can bring value to the various stakeholders so that Transfer Agency can thrive and mature further. It is important to remember that it is the one place an Investor gets to engage with the Asset Manager and so offers an unparalleled opportunity to set the tone of engagement and develop the Investor relationship.

The Transfer Agent that can show itself as a true partner to the Asset Manager by providing a leading customer experience with an ability to deliver on all the reporting and KYC/AML requirements will soon be seen as essential to the Asset Manager. Effective and efficient processing with the ability to be agile and responsive to Investor, Asset Manager and Regulatory demands will ensure that Transfer Agency can maintain relevance.

However, standing still and maintaining relevance is something that Transfer Agency has being trying to do for the last number of years. Now is the time to realise that new, bold actions should be taken so that Transfer Agency is not consigned to the dustbin of history.

As the millennial and digital natives become more engaged with the Asset Management industry and recognise the need to ‘save for a rainy’ day, so the Transfer Agency / Asset Management partnership that offers the best customer experience will continue to be relevant. The upcoming generation of Investors, be they Retail or Corporate, will expect to have a dynamic, flexible and ‘enjoyable’ investing experience!

This presents a challenge to a function that moves at a glacial pace and frequently pays lip-service to transformation. Now is the time for Transfer Agency to grab the opportunity and show its willingness for quick and effective change. Many in the industry are consciously making efforts to investigate new ways of doing business in how they can advance themselves in the current market and showcase their innovation. However, the whole Transfer Agency needs to rethink how they operate to take advantage of the technology offerings so they can adapt, and survive. Only the bravest and boldest will then thrive.

Nevertheless, this cannot be done on legacy systems that over time have spawned whole sub-ecosystems as tactical solutions were applied to maintain the BAU state. Putting a shiny Digital Front End, for example, onto this type of environment will not provide a strategic solution since multiple touch points will be required behind the scenes slowing the experience, potentially disengaging the very audience targeted for the Front End. 

An area though which Transfer Agency can and should lead the way is in the servicing of Products and Investors.  The forward looking, dynamic Transfer Agent will realise that they can provide their services to a diverse range of Asset Managers and Investors for a broad range of Products. 

Retail investors should be embraced (as it should be remembered that they are in effect the investors underneath the Institutional Investor) with a multi-channel offering on an agile platform. As millennials come to the fore for their future savings a staid Transfer Agent will find it hard to engage and justify their fees if they cannot service this new investor type.

The Transfer Agent that can take its experience in fund servicing and apply to new product ranges (e.g. Pensions, ETFs) and additional services (such as acting as Distribution channel/Sub TA) will find opportunities in the market.  With the capability to service Mutual Funds, Alternative Investments and Pension & Insurance offerings through a single gateway, the next generation Transfer Agent continues to be relevant if the engagement process is effective.  To do this, Transfer Agents can evolve by moving away from legacy systems and infrastructure to a micro service architecture in a more streamlined environment. They can truly transform themselves and become a Digital Transfer Agent with the capability to service a wider range of products and investors at lower cost.

As a function Transfer Agency will still be completed as it is necessary to keep a record of all Investors in a Fund.  The modern, forward looking Transfer Agent will not necessarily be what we see and are comfortable with today.

To maintain relevance now and into the future, Transfer Agency has to embrace change and the transformative technology that is still in its infancy. In addition, the ‘sticky plaster’ approach to systems needs to be rethought and appropriate investment in modern IT system offerings must become the new normal.

A cost-efficient function that can provide a streamlined, efficient service which fully engages the end Investor will always be seen as relevant. However, if we continue to wait for others to lead we will soon find ourselves looking back at history trying to understand why Transfer Agency is no longer required.

This is an abridged version of an article that was first published in the Journal of Securities Operations &Custody, Volume 10 Number 2 by the same author (see https://www.henrystewartpublications.com/jsoc/v10)


[1] “Why transfer agents should embrace an infrastructural future”; Dominic Hobson; http://cooconnect.com/dominic-hobson/why-transfer-agents-should-embrace-an-infrastructural-future

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