Transfer agents and other asset servicers in the investment fund industry want to meet existing challenges and to keep pace with rapid change.
Many are turning to cloud solutions, as Sébastien Gréau, Chief Technology Officer of FundsDLT explains.
A lot has happened in the fund industry in the past decades and actors in the value chain wish to become more sophisticated in their offerings and solutions. As this sophistication grows, asset servicers such as transfer agents are increasingly aware of the costs and limitations of their existing IT systems in the new environment. Now, in order enable greater efficiency and to better serve all during the process of buying and selling investment fund shares, many of these companies are considering migrating part or all of their systems to cloud services.
There are numerous advantages that moving to the cloud can offer. Among these, the economics of cloud activities is one of the most persuasive. Total costs are significantly lowered as well as the outlays and resources allocated to deploying and maintaining solutions, which under the traditional system are often completely in-house.
The flexibility that the cloud offers is also an important benefit. The pay-as-you-go / use-as-you-need capacity of the cloud enables asset servicers to move much more quickly and the ability to scale up or down is vastly improved.
With the aim to improve the overall offer and future-proof their business, cloud migration is one of a suite of interconnected actions – such as use of APIs, artificial intelligence, big data analytics and blockchain processing with smart contracts – that asset servicers are now needing.
But how difficult is this migration and how best to ensure a smooth transition?
Challenging for transfer agents?
Within the fund distribution chain, the register and transfer agent (TA) plays a key role and is positioned is at the core of the asset gathering of the fund. Its traditional duties encompass, investor servicing, register maintenance and transaction and fee processing, among others. With such a central role, TAs process key information and therefore the reporting and data provision component of its duties can only grow in importance.
With less room to manoeuvre in terms of fees, transfer agents often hesitate when it comes to transforming systems.
Sébastien Gréau, CTO of FundsDLT
However, while it operates on particularly low margins and high volumes, the TA business comes with just as many, if not more, operational inefficiencies.
With less room to manoeuvre in terms of fees, transfer agents often hesitate when it comes to transforming systems and as result the pace of change is necessarily slow. In today’s environment and with the growth in complexity and size of the European fund industry, some of the systems in place are close to obsolete.
Any evolution of these legacy systems could be costly and resource-consuming.
Nevertheless, the immediate and long-term benefits of changing are compelling. The transfer agent is the source of very significant amounts of data. In the new environment the ability to master and use this data is key. Transfer agent solutions that are good at this will put TAs in a better position to diversify and truly create value for asset managers.
Cloud services can respond to these issues, and migrating to the cloud can thus enable transfer agencies to be future ready.
Moving to the cloud: getting it right
Transfer agents have to move from on-premises systems, or in some situations single-tenant hosting, to a cloud environment and multi-tenant hosting. They are going from heavy clients and/or virtual machines to a full web delivery. Added to this is the need to use Rest APIs throughout the industry.
If not done properly and carefully, a cloud migration for a TA can be heavy-going from a technical perspective. So, to take a step back let’s consider what we are all aiming for in terms of information systems.
The first point to keep in mind when migrating to the cloud is that complexity exists and will always exist. It is not the aim to eliminate complexity but to work with by sub-dividing and containing it.
The second point to remember is that there are different types of migration, an obvious point perhaps but the right choice needs to be made before starting the project Transfer agents should ask what is the ideal type or approach for a typical TA? Is there one solution for all or many? What about transitional solutions? Any choices at this stage reflect business needs and will be different in each situation.
There will be hurdles to overcome during all phases of the migration: these may include supporting hybrid architecture during the transition period and roll-backs to the legacy system if needed. There is also the possibility that during implementation there will be additional requirements and hence modifications to legacy systems because of the particular needs of the cloud. There may also be issues around the need to add extra layers of security.
These obstacles have all been encountered by companies during cloud transition.
A cloud-native approach for transfer agents
More than ever the fund industry needs flexibility, scalability, speed of delivery and cost-effectiveness. Cloud-enabled services can reply to these needs. But to get the most out of any migration TAs should avoid the traditional “lift and shift” migration approach, and many of the complications that come with it. Instead, they should level up to a cloud-native approach from the outset.
Cloud-native solutions enable asset servicers to get the full benefit of cloud infrastructure and to open up some very sophisticated services. It is about speed and ease of innovation and change, much better scalability and resilience with cloud native.
Cloud-native means, in essence, a better merging of IT capabilities and business needs. The outcome of this approach is the ability to speed up digital transformation and create value for the business.
Today. transfer agents attempt to diversify their offering in order to generate new revenues but they struggle to implement. Ultimately, cloud-native transition by TAs will help them rise above the many existing barriers to a future-ready business.