The economic benefits are obvious, but they don’t come without a downside. The sharp increase in complexity and administration can compromise the high levels of service investors demand.
Extensive distribution networks are complex to handle, with many different counterparts (ie IFAs, banks, brokerages, supermarkets and fund trading platforms) and many levels of hierarchy in the distribution chain. Clearly more distributors means more distribution agreements to manage, complex distribution hierarchies necessitate complex commission calculations and multi-country distribution produces multiple decentralised information databases.
High service levels must be maintained as they are a key factor in differentiating fund managers. This forces companies to take a decision: either invest heavily in IT and highly-skilled staff, (which is a significant commitment in what is a rapidly changing environment), or outsource the IT functions to allow greater focus on client service and the core business of fund management.
Outsourcing these uneconomical and time-consuming operational and administrative tasks to an experienced provider can help maintain the high service levels and be a source of sustainable competitive advantage.
Transfer agency (TA) services were traditionally provided in one country for funds domiciled in that country, but today’s pan-European distribution trends call for a TA service that provide a pan-European offer. A TA service which can be offered as a standalone or bundled with fund administration, can help fund managers adapt to local distribution patterns in key European markets. A service provider therefore needs both the experience in European markets and heavy-weight IT capacity. Technology is so crucial, as a specialist can only handle the complex, high-volume processing tasks at a reasonable cost, with a high degree of automation.
Caceis has launched a new offer called the ‘European TA’ service that addresses the principal issues concerning pan-European fund managers: sell funds domiciled in different countries throughout Europe, reduce risks, minimise costs and efficiently remunerate the distribution network. Caceis’ automated IT systems together with the customisable, secure web platform, Olis, provide reliable real-time product distribution reporting, and can handle variable rate commission calculations for distribution networks of up to 10 distinct levels. The European TA service also benefits the fund distributor by increasing the range of products that can be sold, providing consolidated reporting of transactions and holdings and a clearer indication of forthcoming commission payments. The investor’s service experience is augmented too with a wide range of investments to choose from, a one-stop-shop for transaction and portfolio management and importantly, lower costs.
This new service, already adopted by certain large asset management houses, can help fund managers maintain high levels of service for their investors and counterparts whilst minimising costs and administrative involvement so that the core business of fund management remains the primary focus.
Etienne Carmon is a marketing and product development manager at Caceis in Luxembourg.
