Rapid technology evolution, shifting demographics and empowered consumers are trends well documented in academic and business journals alike. But what do they mean for the transfer agency (TA) sector?
To an established market, it may well feel as though the natural order is turning on its head. Fund managers and advisers are launching robo-advice propositions to attract younger, digitally savvy clients whilst simultaneously maintaining a more traditional approach for their established investors. To that end an increasing number of fund managers are moving away from traditional intermediated platform distribution models and seeking a more direct route to their target market.
This desire to leverage competitive edge and savvy marketing must then be balanced with the challenges of the post-sale administration, an area which has traditionally been labour intensive, paperbound and expensive to provide.
As fund managers have continued to seek opportunities to differentiate themselves from the competition, more have considered taking the administration in house, turning it from a commodity service to a true differentiator. Among the drivers here are the perceived need to be agile and respond quickly to changing needs and to provide quickly the tools and services expected as the investor base becomes more demanding.
During this period third party administrators (TPAs) have been at risk of being cut out of the value chain completely by fund managers going direct to investors and platforms, taking a slice of the TA market. Thankfully, however, credible opportunities are emerging to allow TPAs to do things differently by adopting many of the digital solutions now being offered by established technology providers in the TA space.
These digital solutions provide the opportunity to leverage efficient processing and record keeping systems with much lighter, targeted solutions for investor and distributor self-service and market integration. For established TPAs, consolidation onto a single integrated platform also gives the opportunity to reduce costs associated with multiple legacy platforms and provides access to the self-service, integration and straight through processing (STP) capabilities that characterise these modern platforms.
Operational efficiency brings the opportunity to reduce costs and incentivise investors and distributors to move towards standardised operating models based on a price differential. STP and self-service for both investors and advisers through the web are ways to achieve this. Packaged, well-defined, paperless processes also have the advantage of reducing errors, rework and complaint handling costs. With next generation digital technology, TPAs can expect STP rates of around 90% and up to a 20% reduction in manpower as a result. Correspondingly, service will inevitably improve, along with client satisfaction.
Commercial viability has always been challenging in the TA space and the pace of change and disruption in this mature market may seem overwhelming. I have no doubt we’ll see some exits. But in a world where technology is automating the sales process, TPAs now have an unprecedented opportunity to use this to their advantage post-sale to increase efficiency, reduce costs and enhance the investor experience.
By combining the correct technology solutions with their market knowledge and the ability to drive economy through scale, TPAs become ideally positioned to provide the services that both fund managers and investors increasingly demand.