Keeping up in ta tech race

The Bank of New York’s recent decision to divest itself of its transfer agency (TA) software business draws attention to the high levels of ongoing investments and economies of scale necessary for an organisation to be able to survive in this fast-moving technology-based area.

Dunstan: costs cut in tough conditions	Corning: moved away form core business

The major provider of global securities services decided to sell its multi-currency, multi-lingual transfer agency software platform, Rufus, to a specialist global wealth management software company, Bravura Solutions. The bank will continue to be a client of the platform, paying £12m (?18m) a year to use it. Kin Corning, chief operating office at The Bank of New York Europe explains that “the strong software growth story” which, alongside ongoing investments, is necessary to ensure the growth of the platform, moves increasingly away from their core business, which is the provision of securities processing services, “not the provision of technology per se, on a stand-alone basis”. This transaction will also open up new opportunities, favouring the expansion of the client base of the platform, according to Mr Corning. “The opportunity to sell Rufus to the third-party administrative market is certainly limited while the bank owns the software. Third-party administrators will obviously be concerned about buying it from a large competitor.” Mr Corning adds that the bank is going to be the largest client of the new entity and will be “very supportive” of Bravura’s attempt to grow the product. There are only very few TA systems sold commercially in Europe, perhaps five or six, estimates Jim Clark, director of sales and marketing at State Street Bank in Luxembourg. In addition to administration services, custody and fund accounting, State Street offers third-party clients TA technology and services through IFDS, a joint venture between the bank and DST, a specialist technology company. “Providing the full range of capabilities to support customers gives us flexibility,” says Mr Clark. “We built our technology, but most important we also provide services. It is this flexibility to offer customers services only, technology only or a mixture of the two that gives us flexibility, which is very important in the transfer agency business.” “There is no competition with our clients, it is a good partnership because we can allow our clients, asset managers of the investment industry, to focus on core competency which is managing money, creating and distributing products. Our clients know that we have got this good technology that we can develop ourselves, plus all the services. We don’t see any conflict of interests, it is just a very natural partnership.” In the big, mature UK fund management market the TA business is the largest in Europe. Independent financial advisers (IFAs) are the main distribution channels and they tend to outsource the TA function more easily than banks. In Europe, most banks don’t buy TA systems but they develop their own in order to use them, in their transfer agent function, not to sell it to third-parties, says Mr Clark. The growth of distribution of third-party funds and the increasing volume of transactions is making operational flows much more complex. Employing the TA software reduces costs by automating processes. “The TA software handles a lot of financial transactions,” says Iain Dunstan, Bravura Solutions’ managing director and chief executive officer. “When you are dealing with tens of thousands of transactions per day, even a small reduction in the number of transactions that need to be faxed and can be automated has a large impact on costs.” Mr Dunstan, who is looking to expand Bravura’s business in the UK and Europe, by also leveraging on the expertise acquired in wraps and pensions in his home Australian market, believes that in preparation to a likely global downturn, companies are increasingly looking at their internal costs. “When you are in a bull run, and everybody is making money, most people will look at what is the best performing fund. As all starts to come down, they will ask which fund has the highest cost, which one is charging the most.” The tougher the market gets and the returns diminish, the more the costs start coming under the microscope, says Mr Dunstan. “We strongly believe that the trend in Europe, over the next 5-10 years is that more and more European asset managers will look at outsourcing the transfer agency service, in the same way they have outsourced custody and they are increasingly outsourcing fund administration.”