As the fund industry evolves, transfer agents face a pivotal moment. Paolo Brignardello CCO of FundsDLT says that far from displacing existing actors, DLT and automation helps them enhance their services, streamline operations and position themselves at the heart of the next generation of fund distribution.
Transfer agents play a central role in the investment fund distribution chain, managing investor records, processing transactions and maintaining fund registers. Up to now, these activities have been carried out using platforms technically designed 20 years ago or more and which have served the industry well. However, as market dynamics evolve, these legacy systems are increasingly seen as a constraint, unable to meet the growing demands for interoperability, speed and efficiency.
The solution lies not in replacing transfer agent activities but in empowering them through digital transformation. Contrary to the concerns that DLT or even AI might disintermediate existing actors, the reality is that it offers TAs the tools they need to improve their services, reduce operational costs and expand their offerings. By leveraging technology, transfer agents can become more agile, efficient, scalable and client-focused, positioning themselves as critical players in the next generation of fund distribution.
Hybrid models: a first step in digital transformation
The transition from legacy systems to fully digital is a journey that starts with hybrid models. Hybrid systems allow transfer agents to incorporate digital tools—such as automation and cloud platforms—into their existing infrastructure. This enables them to begin to access the benefits such as improved processing times, reduced errors and enhanced transparency, all while maintaining continuity with their legacy systems.
Hybrid models offer several advantages for firms reluctant to make a full leap to next- gen DLT-based operations immediately. They allow transfer agents to gradually adopt digital solutions in a way that minimizes risk and disruption. For example, cloud-native platforms can be integrated into existing workflows, enabling faster processing and more responsive client service. Automation of tasks such as investor onboarding can deliver immediate gains in efficiency without the need for a complete system overhaul.
This approach helps transfer agents manage the costs associated with digital transformation, spreading investment over time while showing incremental improvements. It also allows them to demonstrate the tangible benefits of digital technologies, helping to build stakeholder buy-in and creating a roadmap for further transformation.
It also positions transfer agents to connect with a new generation of digital distribution platforms that are emerging across global markets. These platforms are designed to meet the growing demand for faster, more transparent and scalable fund distribution, offering enhanced integration capabilities and seamless connectivity with distributors, asset managers, and investors. By aligning with these innovations, transfer agents can significantly expand their operational reach and deliver superior service in an increasingly digital ecosystem.
The promise of the on-chain ecosystem
As transfer agents move beyond hybrid models, the future lies in fully digital, DLT-based systems. Blockchain technology offers transformative potential by creating a secure, transparent and immutable record of all transactions. With DLT, transfer agents can issue funds natively on blockchain rails and maintain a real-time, auditable fund register that provides full transparency for asset managers, investors and regulators alike.
A key advantage of blockchain is its ability to reduce manual reconciliation tasks. In traditional operations, actors in the distribution chain, spend significant time and resources reconciling transaction data across multiple systems, which can be error-prone and time-consuming. With a blockchain-based system, all stakeholders can access a shared, single version of the truth, eliminating the need for reconciliation and dramatically speeding up processing times.
DLT also introduces the concept of smart contracts, which can automate many of the business rules that govern fund transactions. For example, subscriptions, redemptions and compliance checks can be executed automatically once predefined conditions are met, reducing the risk of human error and improving operational efficiency. This automation frees transfer agent operators’ time to focus on more value-added tasks, such as client service and data analytics.
This is an important point, DLT implementation does not necessarily aim to displace transfer agents but to empower them. By adopting blockchain technology, transfer agents can reduce their reliance on outdated, manual processes and offer more competitive, scalable services. They remain central to the fund distribution chain, providing oversight, managing account information and communication, as well as ensuring regulatory compliance, all while benefiting from the enhanced efficiency and security that DLT offers.
Therefore, transfer agents, as trusted intermediaries, are well-positioned to capitalize on the opportunities provided by DLT to expand their role in fund distribution and meet evolving client deeds. Rather than being sidelined by DLT, transfer agents will find themselves at the heart of an increasingly digitalized, data-driven fund ecosystem.
Overcoming the challenges: costs, integration and interoperability
Despite the clear benefits of DLT, there is still resistance within the industry. Also, moving to a fully digital, on-chain system is not without its challenges. Yet, those that do make the transition stand to gain a significant competitive edge in terms of cost efficiency and transparency. There is also the added ability to easily scale operations, opening up possibilities for TAs to easily work within new generation of digital distribution channels and D2C solutions.
Nevertheless, many are still hesitant to fully embrace DLT due to concerns over the integration process, cost and the complexities involved in moving away from established workflows. There is also a natural reluctance to disrupt familiar workflows and processes that have worked for decades.
However, one of the key ways to mitigate these concerns is through the Software as a Service (SaaS) models. SaaS is not a new idea in the TA world and DLT-based platforms as SaaS allow firms to access the technology without needing to make significant capital investments in infrastructure.
Additionally, cloud-based platforms offer significant cost advantages. By moving operations to the cloud, transfer agents can eliminate the need for costly on-premises servers and infrastructure. Cloud services provide scalability, allowing firms to handle growing transaction volumes without major investments in physical infrastructure. Moreover, the pay-as-you-go model of cloud computing ensures that firms only pay for the resources they use, optimizing costs based on business demand.
This combination of SaaS and cloud infrastructure helps firms reduce the initial financial barrier to adopting DLT-based systems. It also simplifies the process of scaling operations as demand grows, enabling transfer agents to expand their services efficiently without major capital outlays. For smaller or mid-sized firms, the ability to access digital technologies through SaaS models makes it possible to compete with larger players, levelling the playing field in terms of operational efficiency and client service.
Another key challenge is the integration of DLT with legacy systems. Many transfer agents work with deeply customized workflows that are difficult to replace outright. Integrating new digital technologies with these systems can be difficult, particularly if the goal is to create a real-time processing environment across all aspects of fund distribution.
A hybrid integration model offers a solution. By allowing new DLT-based systems to work alongside legacy platforms, transfer agents can modernize their operations without the need for a full system overhaul. For instance, some firms have successfully integrated cloud-based solutions with existing transfer agency platforms, enabling faster processing times and improved transparency without disrupting ongoing operations.
Finally, the lack of standardization and interoperability between different DLT platforms can hinder the adoption of fully digital systems. Different protocols and platforms create silos, preventing seamless communication between systems and increasing operational inefficiencies.
This situation is exactly what DLT and tokenisation were meant to avoid. Fortunately, efforts are already underway to create industry-wide standards for DLT and blockchain-based solutions. They will help ensure compatibility with a broader ecosystem.
Building the digital future now
Transfer agents are on a journey from legacy systems and processes to fully digital, on-chain solutions. By adopting hybrid models and eventually transitioning to DLT, they can enhance their operational efficiency, improve client service and grow their businesses. Importantly, DLT will not disintermediate transfer agents; instead, it will empower them to remain central players in the evolving fund distribution chain.
With the right approach, transfer agents can navigate the challenges of digital transformation—whether related to costs, integration, or standardization—and emerge as part of the next phase of the investment fund industry’s evolution. By embracing DLT, they can future-proof their operations, offer new services while ensuring their place at the heart of a more efficient, transparent and data-driven ecosystem.
