TrustQuay’s Keith Hale outlines the expanding expectations of the corporate, trust and fund sectors, and how digitalisation looks set to change just about everything. Nightingale’s Laura Lees and Stonehage Fleming’s Christelle Theurillat join the conversation
Software provider TrustQuay has found that technology spend in the corporate, trust and fund markets is, on average, 3 per cent of annual revenue — compared to at least 6 per cent in other financial sectors.
The finding, included in TrustQuay’s annual Future Focus Report, could be seen as surprising — even concerning. Despite this, TrustQuay’s group CEO Keith Hale predicted that this is set to change, and soon, when speaking to Asset Servicing Times.
“Ever-increasing regulation will likely drive much higher levels of automation in trust, corporate and fund services technology,” he said, particularly in the next five to 10 years.
Hale has been with TrustQuay since its formation in 2019, when it was created by the merger of Microgen Financial Services and Touchstone Wealth Management. The company specialises in trust, corporate and fund services technology, with 360 customers and 26,000 users across 30 countries.
Every year since 2020, TrustQuay has carried out its Future Focus Report to gauge the industry opinion of approximately 120 corporate services providers, trust and fund administrators, wealth managers, private banks and family offices. This year the report is entitled: ‘A Digitalisation Pathway for Trust, Corporate and Fund Services.’
Summarising the current market, and the reasons behind the relatively low spend on new technology in trust, corporate and fund services, Hale affirmed that the sectors are undergoing a once-in-a-generation change.
“I think we’re expecting an ever-rising tide of regulatory burden and compliance requirements — it’s not going to come down,” he confirmed..
Hale was joined in conversation by Laura Lees, managing director at Nightingale Trustees SA (Nightingale), a recent adopter of TrustQuay’s SaaS service, TrustQuay Online. Nightingale is an independent Swiss trust company, offering services primarily to high-net-worth international private clients.
Voicing her opinion on the catalysts for technological change in the trust, corporate and fund sectors, Lees said: “We recognise that the industry has had to adapt because of regulatory factors, new licensing reporting obligations, and the logistics necessitated by the COVID-19 pandemic. All these factors combined have led to a necessity to make changes and invest in new technologies.”
Also a part of the conversation was Christelle Theurillat, partner and head of operations at Stonehage Fleming. The company, formed by the merger of Stonehage and Fleming Family & Partners, is an international family office that utilises TrustQuay’s NavOne. The solution allows workflow processes and compliance tasks to be automated, in an effort to decrease regulatory risk.
When asked how trust, corporate and fund services can navigate wider macroeconomic circumstances, Theurillat affirmed: “This part of the industry needs to make a distinction between OpEx and CapEx when they establish their budgets.”
She added: “They should give more leeway to CapEx budgets, while not panicking about spending the money that needs to be spent — that’s what is going to help them remain competitive and able to attract clients. Those that have less leeway with their CapEx budget should consider establishing strategic partnerships with fintech providers. From there, smaller businesses can build strategic partnerships.”
Expanding on Theurillat’s point, Hale commented: “Looking at how much cost could be saved by trust and corporate service providers will become more commonplace — in terms of how much the company would gain in revenue growth and margin increase through technology spend. Technology spend is starting to become more return-on-investment-driven, and is no longer just a cost issue.”
Path to digitalisation
TrustQuay’s 2023 Future Focus Report also found that a third of firms had only just taken initial steps toward digitalisation, consolidating data and systems onto a common digital platform.
“We’ve been looking at how digital the industry has become across the last three years, and survey participants have often come back with the same answer — five out of 10, on average, which isn’t particularly interesting or telling!”, Hale admitted.
“Instead, we asked what steps they were taking toward digitalisation, which included answers such as the consolidation of data, and providing the regulatory services associated with that.
“From there, we asked if they had been able to differentiate themselves in the market by offering digital services. More than 80 per cent of trust and corporate service providers don’t yet offer their clients any digital services, such as a client portal.”
He added: “Digitalisation is inevitable. It’s what has already happened in most industries. Who would’ve thought that taxis would become digitised? Yet, look at Uber. Look at what has happened to the music industry — it started with vinyl, then tapes, then CDs, then MP3 players and download services like iTunes, and now we have online streaming services. In financial services, it’s only a question of when and how digitalisation will happen.”
Lees said: “Change is expensive and it takes motivation — when you’ve got your clients’ work, which is incredibly important to the business, you still need to keep your eye on the future. Juggling those two jobs can be tough.
“However, those who don’t take that approach are going to struggle in the future. Prices will keep rising and costs will be passed on to clients, but there’s only so much clients will be willing to pay for. If they have an option to go to a firm which has invested more in technology, and has reduced baseline operating costs, they are going to go to those firms rather than providers who haven’t adapted.”
Theurillat affirmed: “There’s simply no choice — you cannot sit around the table with the next generation and not offer them something different. Corporate services and the trust markets need to evolve. The only way to evolve — and at a reasonable cost — is by making decent investments in technology.”
Lagging behind
TrustQuay’s 2023 report also found that trust, corporate and fund service providers are lagging far behind other financial sectors in terms of digitalisation, by relying far too much on highly manual practices. Is this lag driven by a collective fear to change, the strain to stretch corporate budgets, or both?
Lees explained: “In recent years, certainly in Switzerland, licensing processes and specific regulatory changes have meant more stress put on an already stress-filled business. It requires a lot of investment — a lot of people having to do more than their job description details.”
She added: “When you’re focusing on the next most important thing, sometimes innovation technology can be pushed to the sidelines. The decision can be split into surviving or developing. However, the end justifies the means and there’s a payoff at the end. The right technology investment is going to keep businesses more agile and flexible. However, in reality, pressing regulatory issues will always take precedence over innovation.”
Theurillat said: “There is no choice, you have to invest. While you’re continuing to invest in technology, consultants will be needed for implementation assistance, or you will need to partner with the right provider. What many industry participants don’t realise is that you will still need the same amount of operations staff while developing and implementing — it is a team you cannot, and should not, decrease in numbers.”
Hale added: “Sometimes it’s not called ‘digital transformation’, sometimes it’s called ‘digital disruption’, because some vendors often claim it’s easy, but it’s not. It takes a collective effort of all parties including vendors, customers and often third-party change experts. But the benefits and resulting returns are massive, if you get it right.”
Sign of the times
Around 33 per cent of trust, corporate and fund firms believe they are investing the right amount in innovation, TrustQuay’s research found. To what degree has this statistic been determined by the current state of the fiscal market, and current layoffs in the technology industry?
Hale surmised: “During COVID-19, the wider technology industry saw a demand for digitalisation due to working from home and a boom in online purchasing, among other things. Many large technology companies and highly funded start-ups were hiring ahead of their actual needs, hoping for the growth to continue. More recently, we have seen significant lay-offs by these technology companies, particularly since their expected growth has slowed.
“However, that, to my mind, is not connected to the need or lack of technology adoption in trust, fund and corporate services, it’s more to do with the wider technology market. We have actually seen the opposite in fund, corporate and trust services — clients want and need to invest more in technology.”
Adding his thoughts on wider macroeconomics, Hale said: “A number of people are worried about higher interest rates impacting the returns in the private equity market and the companies they back, due to the cost of leverage that private equity firms use to fund their investments. However, I think
there are many interesting companies and market
opportunities that can make good returns over the next
few years, irrespective of higher interest rates and the
cost of leverage.”
Expanding on Hale’s point, Theurillat said: “There’s an interest in private equity alternatives, which, of course, help to lower volatility and inflation protection.”
Bringing the conversation back to digitisation, she added: “Private equity alternatives is a complex space, and with all the regulation around that field, you need to have a proper platform that can provide you with what you need.”
Utilising TrustQuay Online
Last October, TrustQuay expanded TrustQuay Online, its end-to-end, cloud-native SaaS platform which allows service providers to manage their regulatory and business requirements for their entity and practice management. TrustQuay Online leverages the infrastructure of Microsoft Dynamics 365 Business Central, and is interoperable with Office 365.
“I describe TrustQuay Online as the non-identical twin of NavOne, with the same underlying trust and corporate services capabilities, but deployed as a modern SaaS product,” affirmed Hale. “It includes all the necessary underlying infrastructure and pre-requisites as well as the application software. It appeals to firms who don’t necessarily have or want an in-house IT team managing infrastructure and upgrades.”
Nightingale was one of the first businesses to adopt the platform. Commenting on the use of the product, Lees said: “We wanted a product that was built for the future of the industry, as well as a fully-integrated cloud-based service to make us more flexible. TrustQuay Online corresponds with our ideology of having everything digitalised. It’s been a very exciting few months, and we really appreciate the support that TrustQuay has given us.”
Looking ahead
When asked about her predictions for the future of digitisation in the trust, corporate and fund services, Theurillat affirmed: “In five to 10 years, those businesses that are already on a successful digitalisation pathway will be particularly efficient with robotics and AI.”
“This will allow them to increase their use and adoption of blockchain,” she adds. “That sort of technology is not something that the trust industry, or even the funds industry, currently leverages.”
Lees forecast: “Companies that haven’t adapted well to regulation are likely to exit the market in five to 10 years’ time, or they may be consolidated with bigger organisations, under which they may be able to continue with their boutique and client relationship-orientated business models. There’s a famous Bill Gates quote: ‘Everybody always overestimates what happens in five years, and underestimates what happens in 10.’
“The trust, corporate and fund service sectors will catch up with other industries sooner or later. Currently, they are behind — still using traditional manual processes and payment-based services.
“The successful firms will catch up with other areas of
financial services.”
