Simplify Consulting regularly invite industry experts to gain an insight into their field. We have recently concluded a major Transfer Agency (TA) engagement and have asked Lee Anthony a TA Consultant on his views on the Third Party Administrator (TPA) landscape, how this will evolve and his thoughts for the future.
Our guest and industry expert for this discussion Lee Anthony has 30 years experience within a Transfer Agency and Wealth environment and been a senior leader for some of the major players in the UK.
What has been happening in the industry in relation to Third Party Admin?
One of the most significant changes I have seen is the number of potential new entrants to the market, increasing the competition for administration services. Opportunities, potentially due to a more robust RFP process, has facilitated conversations with existing clients of the group or with those asset managers whose business in the past has not been available or open to discussion.
To be a player in this market what are the top items to be addressed?
Administration services have long been seen just as a “must have”, but now the needs of the asset manager have changed.
TPAs need to be great in order to survive! To achieve scale and to keep or bring in new customers they need to have a USP, something that stands them out from the crowd. There has to be differentiators to provide these asset managers with a reason to move (and go through the pain of a conversion) and to pay well for this differentiator. With increased competition, TPA’s will need to ensure that they can offer a standard of administration which is far greater than just deal capture, registration and contact centre. Asset managers are looking for support in respect of single relationships for them as a Global Asset Manager to help build their distribution model, offer significant improvements to technology to both reduce risks and costs, provide access to data or online services etc.
What technologies do you believe will be key in the next few years and what benefits these will bring?
The control of costs is a big factor for administrators and their clients. We have seen changes to regulations (for example CASS) which was significant with the implementation and in some cases, had a huge impact that is only passed onto the end customer. It is therefore key that any new implementation of technology can be implemented in a timely manner and either reduce risk, improve efficiency or reduce costs.
I would expect to see far more investment in AI. Manual processes and employees can be a significant overhead and so, starting with the interaction with the end investor, the ability to chat, answer simple queries with automated responses or maintaining accounts will be key in increasing throughput and move to a 24/7 service, if desired, whilst decreasing headcount and manual intervention. AI is already being used for a number of back office functions, carrying out simple tasks that were traditionally open to errors. This is only the beginning and we will see far more complex interactions and functions being taken out of the hands of an administrator.
In addition to the interaction with the client via AI, there is a need for the main register business to have improved D2C online capability for the retail investors. A number of asset managers continue to look at these services and only a handful have successfully implemented and launched platforms that allow their end clients to seamlessly manage their portfolio. Clients are more online savvy now with banking apps that allow them to view their holdings, manage funds etc and unless there is significant change in the near future, the cost of managing individuals on the register will be prohibitive.
Big data, the buzz phrase for a few years now, continues to be investigated and if the Transfer agency has the opportunity and compliance agreement we should see a greater ability to data mine, determine trends within the market or provide greater insight for the Asset manager which will start to become a real value add service. The inclusion of multiple sources of data is key and this requires agreement from numerous compliance departments with the collusion between competing firms which tends to be the restrictor.
I think the industry is still coming to terms in respect of blockchain / DLT and whilst some administration platforms who are looking to use this technology in 2019, I feel that it needs to be used in a way that is beneficial to the administrator and find it’s right place in the process. I am not sure this has yet been decided upon in a heavy regulated environment.
Are there any considerations when implementing this technology?
It is worth considering that the implementation of technology, whilst having the ability to reduce manual processes, it may have the adverse impact from an oversight and IT perspective including the cost of hardware. We should therefore focus on it providing a more efficient and risk reduced service.
The concern with any reduction in manual processes is the reduction in headcount when exception processes are needed on a large scale. At the times of technology failures, distributors still revert back to archaic methods, such as Fax and until the administrator can digest this information in an automated fashion, or we can all move forward as an industry and agree a much better way, the need for a person and the increased costs will always be there.
What does the next 5-10 years hold for the Third Party Administrator?
The Third Party Administrator as it stands will need to continue to evolve, it is paramount that they continue to develop services and the technology that supports these whilst maintaining compliance in an ever-changing regulatory environment.
With newcomers to the market offering fully digital solutions, the rebadging of of aging legacy systems with new front ends will no longer suffice and it is inevitable that these will need to be replaced as a whole. These changes bring in risk and costs that may not be palatable to the client, in which case we may see a shrinkage again in the number of companies wanting to offer services.
These newer systems must provide a cost effective solution with flexibility and allow for the administrator to be a value add proposition to the asset manager and their distributors.
Thank you to Lee for this article discussion and his thoughts and observations on the Third Party Administration landscape and how he feels this needs to evolve in the future.
Written by Jayne Brown Wealth Consultant at Simplify Consulting 1 February 2019