By Tony Warren, Head of Buy-Side Strategy, FIS
Its decision time for the fund administration industry. There are signs that the market has become commoditised, with businesses striving to offer increasingly competitive services.
However, in a client’s market, the industry is also exploring innovative ways to expand their presence. At their disposal, and more accessible than ever before, are new and advanced digital technologies that can empower businesses to stand out from their competitors.
In the current climate, driving efficiency and securing revenue are the top two drivers for the fund administration industry. In tune with this, the latest findings from FIS’s annual Readiness report reflect that businesses are turning to automation to drive up their top line growth.
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The good news for administrators is that their asset management clients now have a renewed focus on growth. For the businesses that can support that growth with an enhanced client experience, the outlook is bright. If these firms can evolve from a traditional operating model based on efficiency to a modernised operational model, they will move decisively away from commoditisation and toward an innovation-led value proposition.
Meanwhile, consolidation in the fund administration market is continuing as firms seek scale and specialism. Greater efficiency and innovation both demand investment in technology, so administrators are now focusing on driving more automation through their organisations, modernising their business models with new client services and exploring the potential of emerging technologies.
The FIS Readiness report, which surveyed more than 150 executives from fund administrators around the world, found that the industry sees technology investment as imperative for its objectives of driving efficiency and securing revenue growth.
Technology is the driver for growth
Perhaps unsurprising, is the importance of technology and innovation to help fund administrators to scale up. The ability to provide their asset management clients with richer data more quickly will be crucial. This will require ongoing investment into innovation – both in new data capabilities and in the operational foundations on which these tools will sit.
Although fund administrators have made progress in many areas, they are still more likely, in comparison with their counterparts in other financial services sectors, to be concerned that current technology capability and operational capability are not strong enough to support their growth plans. Disappointingly, despite the apparent uplift in the use of automation by fund administrators, these figures have not improved significantly in the 12 months.
Those firms who have modernised their operating models are already reaping the benefits and are forging ahead. For those that are trailing behind, rectifying that weakness must now be a priority or they will risk being left behind.
Driving growth in the middle and front offices
Many fund administrators are evolving their middle and front office services offerings to meet the changing needs of their clients. In the past 12 months, 38% have developed new risk management services, 32% have improved their asset-pricing services and 29% have updated post-trade processing services. The evidence from the Readiness Leaders is that emerging technologies can enable further gains.
For organisations that are focused on the back office, this represents an important step forward. Fund administrators are increasingly embracing the opportunity to capitalise on asset managers’ interest in outsourcing to generate and secure new sources of revenue.
Automation gives you an edge
Businesses that are serious about future proofing themselves need to automate wherever possible. They can start by incorporating process standardisation and basic automation with a workflow or business process management solution. Then it is about looking at further automation using RPA and machine learning. Finally, they can begin to consider emerging technologies once the basics are covered.
The fund administration industry, keen to drive top line growth and efficiency in their processes, is making significant movement in several areas of automation. For example, 16% now have a fully automated investment book of record (IBOR) we have seen this grow by four times as many as in 2017, which is a remarkable increase. Fund accounting and asset pricing are also substantially more automated than in 2017. C-suite executives are setting the pace in driving outcomes from their automation efforts, which is likely to be crucial in securing faster growth for their businesses.
Our research shows that 34% have seen measurable improved data quality and distribution from greater implementation of automation, compared with just 9% of the rest of the industry. Forty-two percent of industry leaders say the same about their speed of response to both internal and external stakeholders, compared with only 14% of the rest of the industry. In both cases, these enhanced outcomes offer new sources of competitive advantage, as better-informed and more agile organisations are able to move more quickly to respond to client needs.
Overall, fund administrators have building scale in order to drive efficiency and increase their opportunities for growth at the forefront of their minds. The industry is currently scoring lower than banks, broker-dealers, asset managers and insurers on its operational and technical capabilities, but there is still time to make improvements. The growth that the asset management industry has seen in recent years is about to pick up the pace and become increasingly competitive with the unique and intelligent adoption of the technology that businesses should make themselves aware of in order to remain intrinsic in the client decisive market.