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What could greater automation mean for the investor experience?

Uncertain times require accelerated innovation

Even before the outbreak of COVID-19, transfer agents (TAs) were moving to adopt new business protocols in order to enhance the investor experience for asset managers' clients. These uncertain times provide greater impetus to leverage that experience and accelerate digitization of manual processes, and legacy technologies.

Key insights

  • The uncertainties brought by COVID-19 have allowed firms to test upgraded business processes and are accelerating digitization of the investor experience
  • Automating the account opening process is a key plank of digitizing trade flow
  • Distributed ledger technology could prove transformational for the investor experience but industry participants must collaborate in its adoption

Manual processes are under the microscope

While TAs are working towards full automation of the funds processing chain, manual processes remain a part of the investment experience. Trade flow is still reliant on the use of non-digital channels, as is some correspondence between TAs, investors, and distributors. COVID-19 has highlighted some of the inefficiencies in the value chain while also showing that solutions driven by necessity, and supported by regulators, can successfully change the operational playbook.

As with other businesses around the globe, managing the social distancing requirements brought by the health crisis has had its challenges for TAs. These circumstances required the implementation of many contingency measures and have provided an opportunity to gauge their strength for the longer term, says Ronan Doyle, Global Head of Product & Profitability, Transfer Agency at RBC Investor & Treasury Services. “We moved quickly to introduce solutions that were not fully available in the work-from-home environment before this started to ensure ongoing operational effectiveness. We also focused on accelerating delivery of digital solutions and insights to support clients as they grappled with the implications of the crisis for their business.”

Re-engineering the onboarding experience

The account opening process, with its ample documentation requirements, is one of the activities that has struggled to move on from manual processing. While TAs may have seen this as a compliance-type activity in the past, the process is actually crucial to the investor experience and one that is ripe for automation.

The current crisis has only emphasized the need for more collaboration between TAs, asset managers, and platform providers

“If manual processes are resulting in delays, that does not translate into a positive investment experience. Furthermore, it also delays the point at which the asset manager begins to realize revenue from the relationship,” said Doyle. “If you are an asset manager and competing for asset flow, there may be an assumption that investors will just go to the fund that performs best. While that is a consideration, they also want to invest in funds that make interactions easier and more frictionless.”

Financial services firms have been exploring optimal ways of digitizing the account opening experience with clients since before the outbreak of COVID-19. The current crisis has only emphasized the need for more collaboration between TAs, asset managers, and platform providers. With a range of platforms in use, effective solutions need to be technology agnostic and able to operate on a wide range of open IT architecture. “That will only happen if there is acceptance and acknowledgement from not just the TA community but also from asset managers and investors that these things need to happen,” added Doyle.

Will distributed ledger technology be a game-changer?

One innovation that could ultimately build consensus among industry participants is distributed ledger technology (DLT). While technologists have spent years testing blockchain applications, DLT may be ready to mature and prove transformational for the industry. Its potential benefits for trade flow may turn what has traditionally been a multi-stepped process of instructions and verifications between investors, TAs, distributors, and custodians into a seamless and real-time experience for all parties. Some industry analysts see DLT having a disruptive effect on the funds administration industry yet TAs should not dig their heels in and look to fight the tide of innovation, according to Doyle.

“We must embrace the potential for DLT to transform many of the existing manual operational processes. We need to explore these alternatives and continue to evolve our value proposition,” says Doyle.

With scale, established client relationships and credibility built over decades, TAs have strengths to help them embrace disruption and influence the future shape of the industry

TA's willing to champion DLT are only one player in the chain. Exerting pressure for the widespread adoption of the technology needs the help and support of other industry participants. Collaboration is essential. Nimble fintechs can and should be embraced as partners rather than viewed as competitors. TAs, moreover, may not be as vulnerable as they seem to potentially disruptive forces. With scale, established client relationships and credibility built over decades, TAs have strengths to help them embrace disruption and influence the future shape of the industry, said Doyle.

Creating value from data

Occupying a central position in the trading nexus between investors and institutions, TAs have access to a rich data repository that can be further leveraged. TAs are looking for opportunities to consolidate and deliver insightful meaningful data to clients, while complying with regulatory requirements. Data security and privacy remain critical issues, and penalties incurred for breaches can be daunting for organizations hoping to commercialize the data at their disposal. Yet there are opportunities for TAs that can show the value of analytics to asset managers, not only through solutions that offer views of distribution flows in their markets but also through services that satisfy compliance demands. Data solutions that offer “oversight analytics” have appeal to asset managers, particularly as regulators push them to be more specific as to how they oversee and manage their funds. Progressive firms have invested considerable time in this space with clients, producing dashboard-type solutions around flow monitoring. “Clients are keen to receive analytics from us that can help them temperature-check their funds and see what's going on at any moment in time. They can use that to demonstrate to regulators that they are in control,” said Doyle.

Clients are keen to receive analytics from us that can help them temperature-check their funds

Building a positive legacy from the pandemic challenge

The uncertainty brought by COVID-19 is unlikely to disappear for the foreseeable future, and operational changes implemented to cope with the challenges of the pandemic may ultimately become the 'new normal'. Technology has helped TAs manage the transition and will ultimately be paramount in delivering a frictionless investor experience for clients in the post-COVID world.

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