A new white paper argues that transfer agents should be seen as “valued, strategic partners.”
Grygo is the chief content officer for FTF & FTF News.
Is the funds industry on the verge of giving transfer agents new respect especially as these entities adjust to digital transformation and digital assets, which serve as gateways to global expansion?
This is one of the arguments in a new white paper “Thinking Local, Winning Global: Transfer Agency as a Strategic Advantage,” from SS&C Technologies, which knows a thing or two about the transfer agency business.
Wikipedia’s definition describes the vital functions of a transfer agency: “A stock transfer agent, transfer agent, share registry or transfer agency is an entity, usually a third-party firm unrelated to security transactions, that manages the change in ownership of company stock or investment fund shares, maintains a register of ownership and acts as paying agent for the payment of dividends and other distributions to investors.”
Transfer agents must also validate and register “the purchase of new ownership shares and, in the case of a transfer of ownership, canceling the name and certificate of shareholders who sell shares and substituting the new owner’s name on the official master shareholder register,” Wikipedia notes.
The new white paper argues that transfer agency services constitute more than “a necessary but low‑value‑add function. That is a myopic view … Because they handle all the investor data, transfer agents sit on a wealth of information that — when accurately aggregated and parsed — can unlock critical insights to deliver better fund creation and distribution. Transfer agents also often directly interact with investors, making them critical representatives of an asset manager’s brand.”
Thus, “transfer agents are finally — and rightly — being seen as valued, strategic partners,” according to the white paper. The critical data at the local level can be “aggregated at a global level.”
But even as industry forces and new capabilities cause the funds industry to seriously consider going global, doing so is problematic and often the status quo holds firms back, the white paper points out.
“For the funds industry, achieving economies of scale means reducing not just the number of funds but also the number of service providers they employ,” according to the white paper. “In the United States, for example, a dozen fund administrators account for two-thirds of the near-15,000 funds registered for distribution to investors, but another 188 fund administrators are still servicing more than 5,300 funds. In other words, there are many sub-scale service providers in the United States alone.”
In addition, the “10 largest fund administrators have, largely by a process of merger and acquisition, come to control more than a third of assets under administration in Europe and the United States,” according to the report. “However, mergers of neither asset managers nor fund administrators have been accompanied by a concerted effort on the part of asset managers to rationalize their transfer agency and/or fund accounting business with a smaller number of providers.”
This means that many firms are “tolerating multiple service providers,” which “consumes time and money in managing the cost, quality and performance of service provision,” according to the report. “Supervising different transfer agents in just two markets, for example, requires twice as many staff and double the management time and effort of managing one transfer agent in both markets.”
Firms are also likely to have complex “arrangements from past mergers or acquisitions. Sometimes transfer agency is purchased on a stand-alone basis, and sometimes it is contracted in conjunction with fund accounting. If the service provider is a custodian bank, transfer agency, and fund accounting are frequently bundled with custody services. It is not uncommon for an asset manager to have a different service model for each domicile in which they manage or distribute product,” the white paper notes.
However, using different models and providers can mean that “services can be inconsistent in quality and breadth, time-consuming to manage, variable in price, and lacking in added value products such as data management and analytics,” the report states.
Despite the pressures to go global, the report does not urge a radical rationalization of providers but a persistent, phased-in approach to untangling the transfer agency complex. The desired result would be digital technology, digitized data, and digitalized processes that can “yield a better, cheaper, and more consistent level of service in multiple markets — and, most importantly of all, open opportunities to increase sales in markets both old and new.”
