Custodians eye bigger, trickier mandates

For custodians, remaining competitive means using technology to build scalable processes while also being responsive to clients’ specific needs. As the industry evolves, no one wants to be left playing catch up. MIRANDA WARD reports.

The forces of consolidation in the superannuation industry will only intensify the competition for assets under custody in Australia. According to Rice Warner Actuaries, ongoing super fund mergers means there will be fewer, but larger, custody mandates on offer. Throughout the last decade, as custodians fought to gain or defend market share, profit margins have tightened as many competed on costs. Thinning revenues have made it difficult for custodians to invest in technologies that can automate processes and enable them to remain competitive, viable players in the market. BNP Paribas Securities Services’ managing director in Australia, Pierre Jond, says an investment in technology is imperative: “If you’re not investing in technology, you are making the decision you are exiting the market.” For RBC Dexia Investor Services’ managing director in Australia, David Travers, impending regulatory change makes investment in technology a high priority. “Custodians need to invest in technology to keep pace with changes in regulation, to create efficiencies internally and with [respect to] clients and markets, and to develop new products. “This is a significant spend and global organisations are well-placed to leverage this spend. This is the reason why, globally, many small and local providers are exiting the space.” In its recent report, Investment Custody in Australia, Rice Warner Actuaries states a similar belief: “Technology and the standardisation of custody services facilitate the economies of scale that characterise the custody industry. High levels of ongoing technology investment are required to achieve the economies of scale necessary for custodians to remain viable.” On average, custodians in Australia are currently investing between 25 per cent and 35 per cent of their revenues in technology each year, the report says. Globally, the spend is much more varied among custodians, ranging from less than 20 per cent to a little more than 40 per cent. Among the custodians, BNP Paribas and State Street each direct between 20 per cent and 25 per cent of their operating costs towards technology. State Street’s vice-president and head of sales in Australia, Greg O’Sullivan, says this figure covers maintenance, support and product development. “We’ve got 6,500 IT resources in the region who are working on a number of different things,” O’Sullivan.

Pages: 1 2 3