Murray Bender: RBC Investor & Treasury Services is pleased to present insights on the future of asset and payment services across the globe. Coming up on today’s podcast is Ryan Guichon, Product Head for Fund Administration & Accounting at RBC Investor & Treasury Services, discussing the evolution of fund administration. Welcome, Ryan.
Ryan Guichon: I’m pleased to be here today, Murray.
Murray Bender: To start, Ryan, how do you define fund administration?
Ryan Guichon: Fund administration, from our perspective, is a production and control system for the financial products that our clients design and offer to the markets. So, our role is to keep track of the different bank accounts that our clients use for their cap stock, for their securities, for their cash, and to consolidate those different accounts into a unitized share class or a portfolio composition file for ETFs, and then give that information back to them in a detailed manner, where we manage and mind all the account activity and all of the transactions, and all of the granular fees that go into constructing those individual share-class values.
Murray Bender: In your view, how has fund administration adapted to today’s new digital environment?
Ryan Guichon: My perspective on that—and it’s a great question—is really focused on what we’re seeing in our clients, and how they’ve adapted to the digital environment. Our role as an asset servicer or a fund servicer is to facilitate the operating model desired or demanded by our clients for their products.
So if we are a production factory and a control system, we get design orders from our clients to produce feature phones, or phones in general. And what we’ve seen in terms of our clients as they respond to their market activity in their digital context, is they’ve gone from producing orders for feature phones to smartphones.
The level of sophistication, the level of complexity that we’re starting to see across different asset classes, or even within one asset class but a much more complicated either investment or trading strategy, it’s a real step change that we’re seeing in the market, and we’re happy to be a part of it.
Murray Bender: So can you elaborate on that just a little bit more, and talk about how the needs of clients are changing from a fund administration perspective, given the increased expectations around digitization?
Ryan Guichon: As we explore this territory, it’s important to unpack a couple buzzwords into how we interpret them.
Automation is something that we’re hearing to a large degree in the industry. And what that means is faster information flowing. So, we’re seeing, from a financial product perspective, more high-frequency trading systems, more algorithmic trading systems, executing on designed investment strategy. And this has been increasing in the market. We’re seeing 20% of global equities traded through computer systems rather than through more manual means. And we’re, again, talking specifically about these designed algorithmic trading systems.
So, what it means is a much faster trading environment where a computer is able to execute these trading commands very, very quickly. And the ability to monitor and manage and respond from that context is requiring people to take a step back from that initial data flow, to start seeing the markets and allowing computers to take on more of the responsiveness and more of the execution and moving back.
From the production and control-environment perspective, it requires us to be a lot more adaptive, and be able to handle increases and decreases in information flow. So we might see clients with significant trading activity or be exposed to highly volatile environments, and our day-over-day thresholds, our day-over-day control mechanisms, might be very quickly triggered. If we’re seeing a client who’s long-only equities but we’re seeing a dramatic change in the valuations of those markets, our ability to effectively service the financial product that we’ve been entrusted with depends on our understanding of the markets and our understanding of the financial products that we’re being asked to look at.
We can’t just understand accounting. We can’t just stop our responsibilities at that level. We have to get into the technology and understand how to best use the technology that matches to our clients’ front end, matches to our clients’ front office, and how can we better understand the financial products that our clients are offering so that our controls can be more adaptive to their specific context, and we can address the macro-activities without attracting our clients’ attention to movements that they’re already well aware of; while at the same time, not taking too macro a lens that those micro-indicators that are sometimes buried under a couple layers of data and reveal critical insights aren’t lost.
Murray Bender: What are some of the key challenges around fund administration? And how are you helping clients deal with these challenges?
Ryan Guichon: We’ve alluded to some of it already. The efficiency of markets, and the real-time nature of markets is translating to all aspects of the operating model. The value of real-time insights isn’t just from a trading perspective, but it’s also from an oversight and a governance perspective.
Our clients are under increasing pressure from regulators to ensure that they are effectively overseeing their fund operations. And if their fund operations, if their risk management or systems are on a T+1 data feed, and their trading systems and their research data is on a T+0, that is a challenge, a real challenge. And when we see an increase in T+0 equity swaps or equity futures, or any type of derivative instruments traded on an intraday cycle, we’re in a position where the governance mechanisms can’t keep up.
So these efficient markets, the need for the front office to be very adaptive and very quick, to not lose market opportunity, requires the whole operating model to keep up. And it’s not just on our side as the fund administrator. It’s also on the client’s side with their operating model. That’s definitely a big area of need where the client’s macro-need of, we need an effective, stable, intelligent, available fund-service shop. That hasn’t changed, but the interpretation of it and the digital context is very different. So that’s one big piece.
And then the other is, we live in very uncertain times. We just experienced a global pandemic that had a very dramatic effect on global markets. We’re seeing very quick changes in central bank policies around interest rates. We’re seeing disruptions of the global supply chain. We’re seeing a very convoluted and complex set of factors influencing the financial markets. And it’s supply-side, it’s demand-side, it’s all over. And the ability for our clients to effectively adapt in that context is crucial.
So our role is to be adaptive and stable so that we go where our clients need us to go. But we also help them have the right safeguards in place so that the integrity of their regulatory commitments and their client commitments are maintained.
Murray Bender: No shortage of challenges, that’s for sure. But if we switch gears a bit here. What are you most excited about when you consider the future of fund administration?
Ryan Guichon: Another great question. And yeah. I do think it is a very different operating environment in markets today. And I think that presents tremendous opportunity for the firms that are able to take real benefit of the "power law". So, we’ve seen a lot of market consolidation, we’ve seen a lot of new, emerging practices that give us a lot of inspiration.
So I’d say what I’m most excited about is working with clients who are stepping into this new environment of change, and are making the right investments in the right relationships and the right people who they know can drive that change forward.
We’re seeing collateralized fund obligations. We’re seeing new financial instruments hit the press from a potential contagion or potential concern standpoint; there’s a lot of reporting on that. We’re seeing a shift away from growth stocks into a stronger focus on income and dividend-yielding equities. The rising interest rate, the risk-free rate with the U.S. Treasury. All of these are very, very interesting changes that are causing a rebalance across different financial instrument classes.
I’d spoken about earlier the intraday derivative options based on equity. That’s still a very interesting aspect that we want to talk to our clients more about, understand where they’re headed, understand how they are adapting to this real-time environment that has a more efficient, faster-moving market that is adapting to more uncertainty and more volatility as all of these rebalancing factors happen.
So, it’s exciting, it’s a time of tremendous change, and that presents tremendous opportunity. So we are thrilled to be working with our clients who are taking the right perspective, looking at the long term, understanding how to take the right positions now, and understanding when to time those positions so that they hold them for the right period of time and understand what that next step is, and always looking for the clients that are looking at that next step.
Murray Bender: Thanks for providing some very interesting insights, Ryan. We really appreciate your time.
Ryan Guichon: Thank you, Murray. Thank you so much.
Murray Bender: For additional insights on topics relevant to corporate investors and financial institutions across the globe, including our previous podcasts, visit rbcits.com/insights. I’m Murray Bender. Thanks for listening.
This content is provided for general information, and does not constitute financial, tax, legal, or accounting advice, and should not be relied upon in that regard. Neither RBC Investor & Treasury Services, nor its affiliates, accepts any liability for loss or damage arising from use of the information in this podcast.