Technology is transforming the way the industry works. In the fund services sector it has allowed participants to be more agile and provided various opportunities for companies to exploit.
Looking at fund services, trends are focused around technology transformation across three areas.
The first is digitising the customer experience, which has typically lagged behind many other industries.
However, Sern Tham, product director, Temenos Multifonds, explains that asset managers expect seamless real-time interaction with their service providers, which is an area many fund servicers are investing in as a point of differentiation.
The second trend in technology in this space is cloud.
Tham outlines that a couple of years ago, many in the industry were cautious about cloud, but notes that attitudes have changed quickly.
He suggests that like many other industries, fund servicers need and want their core platforms delivered and accessed on the cloud, and increasingly via a full software-as-a-service (SaaS) model.
“We’re likely to see more firms move off-premise to a big public cloud provider like Amazon Web Services, Google or Microsoft Azure. These major public cloud providers’ offerings have evolved a great deal and the benefits in terms of cost efficiency, enhanced capability and security are difficult to ignore,” Tham says.
The third major trend is operational efficiency. Tham explains that a decade-long trend of failing fees and the resultant margin pressure “shows no sign of abating, especially given recent events”.
Fund servicers are continuing to deploy new technologies, such as robotic process automation (RPA) and artificial intelligence (AI) to seek out further efficiencies. Indeed, the exciting technologies like RPA, AI and machine learning have lots of potential use cases and can help to achieve further efficiencies within fund servicing, but industry experts suggest that the challenges lie in speed to market and uptake is somewhat “slow and steady”.
Technological impacts
While technology is certainly impacting this space, the underlying systems that fund servicers use to provide the fundamental valuation, accounting and transfer agency services are not largely changing, hence the technology changes are predominately evolutionary, according to experts.
However, Patric Foley-Brickley, fund services, Maitland, explains there is no doubt that new technologies are slowly being incorporated into the core to enable fund administrators to provide service enhancements and to support the increased need for up to date and accurate information across the investment spectrum.
Meanwhile, administrators strive for constant and continuous improvement, looking to do things better, more accurately and more quickly, but Foley-Brickley highlights this is definitely an evolutionary rather than revolutionary process.
He explains: “There will always come a time where the system you are using reaches the end of its usable life and with this the opportunity to upgrade to the latest technology.”
However, in reality, it is often the case that there are only a handful of systems available that provide the breadth of functionality and the tried and tested systems environment that administrators would be prepared to rely on in terms of achieving enhanced usability within acceptable risk parameters.
Foley-Brickley says: “The choice of underlying system, be it for fund accounting, transfer agency or investment operations presents an existential risk for the administrator and also presents significant challenges in terms of both time and investment. It is very difficult for a new provider to come into this ‘tried and tested’ environment and to persuade administrators to take a risk on something new or different, irrespective of the technological edge it may provide.”
Also looking at the impact, Tham highlights: “I have no doubt that technology is transforming the industry and the future winners will be the first across the line, thanks to technology.”
An issue with a large amount of artificial intelligence models is that they’re essentially black boxes, according to Tham.
He explains: “That is to say, the model produces a result, but how it arrived at that result is not always transparent. This can be a big problem for customers and regulators because it lacks auditability and could potentially lead to hidden bias.”
Opportunities and challenges
Accessibility, security, efficiency, flexibility and transparency are just some of the opportunities technology can provide. Data has also been referred to as the new gold in many industries, and the potential of harnessing correct data is continuing to flourish and provide an abundance of opportunities.
Mark Weir, regional head of fund services, Americas, Maples Group, says superior information delivery systems and the ability to make data useful are “critical to a manager’s success in today’s environment”.
Weir suggests that the biggest opportunities lie in the data the fund services provider holds.
“There is a great deal of data that is captured, reconciled and verified. Fund administrators should be able to customise data outputs to provide meaningful, intuitive and contextualised information for managers and their investors”, he adds.
The approach to technology in this space, however, can be somewhat flawed. Christina McCarthy, regional head of fund services, Europe, Maples Group, explains that while technology can and should provide automation and efficiencies, “it is critical for it to be tailored to the specific needs of clients to provide optimal value and effective integration with their processes”.
When it comes to outsourcing technology, McCarthy suggests it is imperative to work with a service provider that will be a true partner and understands not only the unique needs of the funds it supports, but also has an unmatched view into industry best practices.
She says: “Closed-box solutions that clients must bend to will not drive results. Rather, technology should be flexible and should enable solutions for the clients’ precise requirements. Service providers should develop a truly robust yet customisable platform that utilises best-of-breed vendor solutions where appropriate but also leverages an in-house technology team that has the capabilities to understand and develop client-specific and market segment-specific solutions.”
Weighing in on this, Srikumar T.E., global head of fund solutions, Apex, highlights that now, more than ever before, technology will demonstrate the robustness and the survival of any financial services outfit.
The technology architecture must not only sustain the new working conditions but T.E. says it also needs to ensure higher levels security especially as information is accessed across a wider network.
He comments: “Seamless and secure accessibility of information by internal and external stakeholders has accelerated the use and deployment of AI tools in the industry.”
Some in the industry have suggested there is a technology arms race happening in the industry at the moment which is leading to a lot of consolidation.
10 years ago firms might have competed against six or seven different vendors for an opportunity, now it’s only one or two.
Tham emphasises that it requires a big investment in research and development to prevent software from quickly becoming legacy.
Consolidation is not limited to technology vendors; fund administrators have acquired competitors to gain a scale advantage. Fund administrators have also acquired technology companies to bolster their technology capabilities and service offerings, most notably State Street buying Charles River. Tham comments: “Interestingly, we’re even seeing technology companies competing directly with fund administrators to provide outsourced services to asset managers.”
More often than not, technology is used as a way to service a demand, which can present opportunities, according to Foley-Brickley. He explains that providers are now asked all the time about their digital strategy.
“Choosing the right technology and the right strategy is a difficult problem to solve. Providers will use client feedback and client demand to dictate the majority of their investment spend. But some of the larger providers are making substantial investments in technologies that may or may not change the way in which the industry provides its services. Whether this more uncertain investment pays off only time will tell”, he concludes.
