TA & Distribution

Where is TA and Distribution Operations in 2016?

With the advent of Fintech, Blockchain and other market infrastructure initiatives, the role of the Transfer Agent (TA) and its importance in the overall Fund Operations value chain is, once again, being questioned.

The ALFI TA & Distribution Forum, (today represented by 28 member organisations, 40 members - a blend of asset servicers and asset managers), an ALFI Committee with a twist and its dedicated ALFI TA Steering Committee (appropriately named TASC), have had to grin and bear through some negative views on the TA function in 2016. However, as has been the case of the last 17 years of its existence, the ALFI TASC carries on with the increasing regulatory requirements, the expanding global fund industry and the ongoing market developments shaping its key subject matters, TA and Distribution Operations. The TASC consistently see these changes as opportunities to ascertain the current and future shape of things “TA & Distribution Operations”, in order to ensure that the TA industry supports the imminent changes in their wake, most importantly, to best serve the investors and distributors of their end clients, the Asset Managers.

Although the TA function itself (shareholder & distributor servicing, AML/KYC, shareholder and distributor register maintenance, fund order processing, cash management, reporting, etc.), as a distinct global cross border service offering with a long tradition in Luxembourg ever since the first UCITS was launched in the mid-80s, and despite its global reach and maturity as the - most direct link to a Fund’s end investors and distributors - is becoming a bit of an urban legend these days. 

Contrary to popular opinion and urban legends, let’s not forget that TA is still an important invisible giant. As at 2016, there are over 80 recognised TA service providers in Luxembourg, some of the bigger TA players having cross-border TA servicing hubs in over 12 countries in the world, just for Luxembourg domiciled-funds. TAs maintain over 8 million shareholder accounts, 56 000 distribution agreements covering 70+ countries of direct distribution.

The most recent EFAMA/Swift Fund Processing Standardisation 2016 mid-year data report shows that the 20 Luxembourg TAs survey contributors processed 10.5 million orders during the first two quarters of 2016 alone. Representing a monthly average of 1.74 million orders.

What did the ALFI TASC focus on in 2016?

Both the Asset Management and Fund Distribution businesses are going through major transformational changes, from now to the next 5-10 years, bringing new fintech solutions, such as Blockchain, enhanced operating models and new regulatory requirements, as they seek to grow Assets under Administration as well as reduce costs. These are the main opportunities and challenges for both TA and Distribution Operations businesses from 2016 and beyond.

TA Transformation is already happening. 2016 is a major milestone for ALFI TASC endeavours, particularly on TA Transformation, where 4 key drivers have been identified and corresponding deliverables still in the making through to 2017/2018.

In 2016, we already provided an overview of the shape of things to come for TA and Distribution Operations, as attested during the 16th yearly edition of the ALFI TA & Distribution Forum event, commonly known as the TA Forum. Under the key theme of TA 2020 - TA Transformation on its way, TA Forum 2016 focused on those 4 key drivers that are shaping the fund industry’s operations value chain, specifically the TA and distribution operations business model:

  1. Fintech & Infrastructure: Blockchain, data analytics & big data, D2C & robo advice, KYC utilities
  2. Distribution: re-shaping of fund distribution, new generation of investors, mobile distribution, Asian growth & China
  3. Product: product convergence – the importance of Alternatives, passive versus active funds
  4. Regulatory: MiFID II, PRIIPS, T2S, Brexit, barriers to cross border distribution

Some 220 fund industry experts from 12 countries coming from the US, Hong Kong and the EU listened to high-level speakers representing the TA and Distribution Operations community. 50% of conference participants were “newcomers” which testifies that TA is not dead and continues to be an appealing topic. All subject matters discussed during the conference were timely, and the conference organisers aimed to provide participants with a maximum of thought provoking insights.

To support the product convergence trend between UCITS and Alternatives, with Real Estate and Private Equity funds in the leading position rather than more traditional UCITS, servicing a blend of UCITS and Alternatives funds was at the heart of 2016 TASC endeavours. One of the TASC’ working groups - Alternative Investments Operations WG - delivered a concise guideline, entitled Investor servicing: Operational Considerations for Managers of Luxembourg Alternative Funds. The main purpose of this document being to provide alternative fund managers, considering domiciling or extending their fund range in Luxembourg, with a high level checklist of typical characteristics by fund type and their corresponding operational investor servicing workflows, distinguishing and highlighting key operational and regulatory considerations when servicing investors in either open ended and closed ended funds.

Building an ALFI TASC bridge to Asia

As cross-border fund operations servicing hubs mature, the local communities now require dedicated ALFI support for their own domestic/cross-border business developments. In this view, the ALFI TASC launched the ALFI TA & Distribution Forum community in Asia and implemented its very own ALFI TASC Asia. With the support of ALFI’s representative office in Hong Kong, the ALFI TASC Asia held its very first ALFI TA & Asset Servicing Hong Kong Forum in September 2016. Going forward, the aim is to replicate Luxembourg’s yearly ALFI TA Forum to Hong Kong, soon after the event is held in Luxembourg.

What’s next for TA?

With Fintech & new technology and market infrastructures’ developments already hugely impacting the operating models of all actors of the investment fund value chain, despite their ongoing evolution, TAs continue to be challenged for their alleged lack of innovation and are now threatened to be made redundant by imminent disruptive technologies.

Like most players of the Financial Services ecosystem, Luxembourg TAs are indeed at the dawn of a new era. To preserve their most important purpose – to deliver value-added services to fund shareholders and distributors – some TAs are taking the bull by the horns in playing an active role in defining their own future business model. The ALFI TASC member organisations and the 10+ working groups in place today that cover the 4 key drivers of TA Transformation, are progressing well in defining appropriate deliverables to deliver guidance and support to ALFI members and other related TA & Distribution Operations communities in the world, who serve Luxembourg domiciled-funds.  

To quote some that predict that TA has a very limited future (even some saying that TAs will become obsolete), TA & Distribution Operations players have certainly come of age and are ready to embrace whatever the global fund industry throws at it. If the TA Transformation subjects are anything to go by, they only provide a glimpse of what TAs are doing from 2016 and going forward.

The next 3-5 years promise to be even more demanding for the TA & Distribution Operations community, with the ALFI TASC standing right by its side, as it welcomes one of the most important transformation of its global operating model yet.

Josée-Lynda Denis, ALFI

Chairman, ALFI TA & Distribution Forum, ALFI TA Steering Committee