Transfer Agency Business Gets Reboot

Terry Flanagan

The mutual fund transfer agency business has shifted from a traditional model where the service is provided by the asset manager directly to the investor or via an outside asset servicer, to one in which subaccounts are managed by intermediaries, i.e., the brokers that distribute the funds, and who handle the shareholder reporting.

The presence of broker-dealer intermediaries has fundamentally altered the business model for asset servicers because they no longer can deal solely with mutual fund complexes.

“Subaccounting has changed the economics for a number of our customers that are in the asset servicing space,” said Doug Morgan, president of SunGard’s institutional asset management business. “They have a strong footprint servicing asset managers directly, but not a strong footprint managing the brokers or the intermediaries that are managing this content on a subaccounting basis.”

To address the changing dynamics of the fund services industry, SunGard is expanding its transfer agency capabilities by adding a full-service industry utility offering to its managed services suite. The key catalyst for this expansion is SunGard’s acquisition of the U.S. long funds transfer agency business from Citibank, a transition of shareholder servicing responsibilities that reflects the evolving landscape of the industry.

“Post-financial crisis, there have been dynamics in the transfer agency market that are leading firms to reassess their operating models,” Morgan told Markets Media. “Our software allows us to provide a service to the industry that we believe has general applicability to asset managers, some of whom still manage this function in-house, as well as service providers, for whom the transfer agency function may be one of a number of functions that they provide to asset managers, essentially on a bundled basis.”

Doug Morgan, SunGard

Doug Morgan, SunGard

The traditional service delivery model in the asset servicing industry is one in which mutual fund transfer agency is combined with other back office services, including investment accounting, fund administration and custody.

“The ramifications of the financial crisis have asset managers and TPAs reviewing their service models,” said Frank Strauss, principal, Beacon Consulting Group, in a release. “Increased expense pressure, a focus on institutional assets, industry factors and antiquated platforms have resulted in a re-evaluation of whether the transfer agency function is still a viable offering for them.”

With all of its customers in the asset servicing world—including the likes of Northern Trust, BNY Mellon, and Citi– having to react and respond to ever-changing regulatory requirements, SunGard believes that a utility model for providing transfer agency services will be increasingly attractive to firms providing a bundle of services to asset managers.

“Even in a function like transfer agency, which is relatively static in terms of its basic core functional demands, these firms face an ongoing need to invest, which makes the economics less attractive for doing this purely on an in-house, non-utility based manner,” Morgan said.

In the U.S. market, in particular, there is a need for a utility that can be made available to asset managers and other service providers as well, “where we can take advantage of the fact that we’re using our underlying technology, we can build added efficiencies into that, and we can achieve a scale that other companies by themselves may not necessarily be able to achieve,” Morgan said.

Morgan, who oversees SunGard’s mutual fund transfer agency software business, as well as other investment accounting platforms for traditional and alternative investment funds, said that SunGard itself “has evolved from being a business that is very much built around technology to one in which we are increasingly adding services capabilities that are related to our software core. We see a big synergy between our traditional core platforms and the financial and regulatory reporting demands that our customers need to meet.”

Featured image by Tupungato/Dollar Photo Club

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