May 9, 2018 | WHITE PAPERS

The Future of the Transfer Agency

By Cian Hyland

Abstract / Executive Summary

A Transfer Agency (TA) offers the service of administering a fund’s investor share register to ensure a single source of truth. It’s a service that has often been underrated within the wider context of fund administration. Historically, the fund manager and third party administrator have focused closely on Net Asset Value (NAV) calculations as the primary service offering. Now, the market has finally woken up to the fact that a top-quality, well-executed TA service can play a key role in delivering first-class customer service to investors, and since the primary customer interaction for most investors is with the transfer agent, it stands to reason that TA should be considered a pivotal service.

Overview of the Industry

There are approximately 300 fund administrators globally servicing more than 6,000 asset managers. The fund administration industry is quite mature and is currently experiencing significant consolidation across the market. From a fund management perspective, the breakdown is top-heavy with the top thirty fund administrators servicing over 90% of all assets in the industry. This trend is set to increase as the majority of prospective new clients are showing a preference for top-tier administrators due to their competitive fees, brand recognition, suite of services offered, global operating model, and investment in technology.

Fund administrators compete fiercely for business with scale being the ultimate goal, as with scale comes profitability. Without scale, profitability is increasingly challenging and it’s simply a matter of time before sub-scale firms sell out or exit the market. With the addition of an increased regulatory burden and relentless competitive pressures, margins are being squeezed from all angles. With these macro and micro economic pressures, most fund administrators are looking to automate aspects of labor-intensive processes within TA or alternatively outsource to lower cost centers.

Before we jump ahead though, let’s take a look at where we’ve come from. Traditionally, fund managers performed the work of the transfer agent themselves until it became clear that this involved an essential but onerous workload which could be better served by outsourcing to a third party administrator. Investors also placed greater pressure on fund managers to use third party administrators for independent oversight. Whereas third party administrators initially offered basic services centered on the settlement of fund orders and the issuing of simple reporting, such as contract notes and investor statements of account, today transfer agents work with their clients to deliver complex transaction, cash, fee, regulatory, and investor reporting with around-the-clock accessibility. In addition, leading transfer agents now offer a fully digital customer experience throughout the investor lifecycle.

An Increasingly Challenging Marketplace

The fund administration business has changed significantly over the last decade, and the impact on transfer agency services has been considerable. The environment is more complex and more regulated than ever before, investor protection and transparency are front and center, and with the hybridization of investment products, transfer agents are under increased pressure to manage complex products with highly bespoke features. Worldwide, we are also seeing a groundswell in the rapid and increasing demands of regulators and tax authorities. Compliance with multiple regulations, in turn, makes administrative processes even more complex, increases the demand for more detailed reporting, and in turn, requires even faster access to data. Thus, transfer agents are also seeing a growing demand to provide faster and more complex global services in general while facing considerable pressure to reduce costs. The need to expand service offerings while protecting margins ultimately requires transfer agents to increase operational efficiencies through automation, scale, and outsourcing.

The Digital Economy

The use of technology in asset servicing is still evolving, yet is still quite far behind other industries, comparatively speaking. Investors are demanding first-class mobile digital services, and asset managers are responding in order to remain relevant and meet investor needs for convenience, transparency and real-time information. ‘Going digital,’ however, is not without its challenges and costs; it requires a cultural change as much as it does a change in infrastructure. We are seeing a huge push in the industry towards system integration through Application Programming Interfaces (APIs) that can create a fully digital ecosystem in which data can be transferred in real time to a portal or mobile app to deliver the desired customer experience.

Technology Disrupters

There is a number of disruptive technologies which have the capability to alter the landscape of the TA industry. Two prime disruptors are Block chain and Artificial Intelligence (AI).

Blockchain, the distributed ledger technology most popularly used by the digital currency Bitcoin, could potentially eradicate the requirement for human resources to manage transaction processes using a transfer agent. The jury is still out on how high the adoption rate will be for this technology; only time will tell.

Artificial Intelligence and machine learning technologies such as robo-advisers and chatbots could certainly reduce the requirement for staff to manage some aspects of frontline investor relations. There have also been some excellent advancements in optical character recognition software, which we believe will become a standard technology for transfer agents as they move to automate the processing of structured and semi-structured documentation in the transition to going fully digital. We are also gradually seeing increased growth and demand in the areas of Machine Learning, Deep Learning and AI capabilities to increase efficiencies and provide insights into investor needs and behavior. These technologies are used to scan huge volumes of data, spot trends and patterns, and deliver intelligent findings used to assist in decision making, or take action without even requiring human intervention.

Such types of technology have the power and potential to overhaul financial markets. It’s probably inevitable that machine learning will play an increased role in asset management and fund administration going forward, but its expected role could actually be to complement rather than replace human expertise: Machines can be used to execute laborious and predictable tasks while allowing humans to focus on superior client service, relationship building, and other value-adding duties that require actual human interaction.

Payments technologies are also evolving rapidly and growing evermore sophisticated. The funds industry is lagging behind in terms of its adoption of new payment methods and automated solutions. Blockchain technology has been looming on the horizon for quite some time now, and it has the potential to transform the funds industry, particularly in the area of clearing and settlement; however, there are still many obstacles to its widespread adoption.

Blockchain, however, is not the only means of innovation in this sector. The EU Payment Service Directive 2 (PSD2) mandates open banking in the European Union, and as a result, is providing a huge scope for financial service providers (both banks and non-banks) to develop new banking models as they leverage APIs and openly available financial data in order to challenge the status quo in banking circles. Early movers are already adopting “multibanking” and “banking as a service” solutions. The traditional methods of payment may remain sufficient for many years to come, but the funds industry needs to be aware that competitors are fast emerging in this space, and that they present a real competitive threat as they offer more secure and trusted asset management solutions, and make aggregation of customer financial data and multi-banking a reality.

Amazon the Bank

The asset management and banking industry is ripe for disruption, and all the market conditions look favorable for a technology leader such as Amazon or Alibaba to enter this space and completely take over. Amazon has over 86 million active users, which is greater than the customer base of any global bank. Amazon is already in the lending space, so it could easily offer other suites of financial products and banking facilities, and has the customer base to engulf a significant portion of the global market. This scenario would be a game changer and disrupt both industries from the top down, and have trickle-down effects on transfer agents, as a technology giant like Amazon has the potential to take large chunks of the TA business in-house.

What we could see in TA is symptomatic of a global trend where technology and the major tech giants are gradually take over more and more industries. With a multitude of market forces and a continuous stream of regulations to deal with, transfer agents must become more technology-focused and cost-efficient to survive. Scale and automation constitute key components of making this necessary transition.

Regulatory Compliance

Compliance costs are on the rise for fund administrators. Since the Global Financial Crisis of 2008, we have seen a huge wave of new regulations introduced, such as AIFMD, FATCA, Form PF, MiFID II, GDPR, and PSD2, to name but a few. Worldwide, there is increased scrutiny of the financial services sector to ensure the appropriate levels of portfolio risk management through stepped-up customer due diligence and anti-money laundering checks. This increase in regulatory requirements has been somewhat overwhelming for fund administrators, institutional investors, and asset managers alike to digest. All parties now face the relentless challenge of keeping pace with regulatory changes as well as the practical implementations and mechanisms required to achieve and demonstrate compliance to the appropriate authorities.

Increased transparency and greater oversight to protect investors is the ultimate goal. However, complying with any one of the major regulations can be a costly and onerous exercise, and maintaining multiple data sources can be incredibly challenging. Therefore, data warehousing may be a viable option to ease the regulatory burden by enabling information to be pooled into one large, accessible database that can be queried as required. This means that data storage alone is no longer the key concern; administrators now also need to consider how investor data can be analyzed, modeled, and utilized to contribute to faster and more effective decision making across the organization.

Blockchain solutions, as suggested earlier, are not just focused on settlements. In the regulatory realm, Blockchain is also seen as a potential solution to the challenges of achieving and maintaining compliance by offering significant transparency at a low cost to participants. The screening of customers, transactions, payments, and interested third parties can still be a complex, labor-intensive, and extremely manual, arduous task for administrators. Continuing to maintain manual processes is neither an effective nor efficient long-term strategy. Investment in technology here too can increase efficiencies and ultimately yield a far greater return.

The Need for a Data Strategy

Looking ahead for 2018 and beyond, there are as many challenges as opportunities for fund administrators in the asset and wealth management sector for which comprehensive TA systems can provide solutions. Brexit, the digital revolution, and new regulations will all come into greater focus as they start to impact businesses in a variety of sectors of the economy. Now that data is the most valuable commodity on the planet, businesses of all sizes need to start harnessing its power. Traces of our digital data are everywhere. Asset managers and fund administrators need to have strategies for effective data management so they can carefully manage, store, and manipulate the data they are collecting. Data analytics can not only provide rich insights which will help to improve decision making, but can stimulate the development of new products and services as well.

Customer Centricity

Strategies focused on customer-centricity and innovation are also becoming more and more important for businesses as they seek to deepen customer relationships. The benefits associated with fast time-to-market and first-mover advantage, in particular, must not be underestimated. Choosing the right strategy to respond to disruption, innovation, and digitization of the financial services sector is critical for fund managers and administrators if they are to successfully address their evolving customer and investor needs. Perhaps to some, end-to-end digital solutions may not seem practical or even realistic; however, advancements in the usage of APIs and open infrastructures enable administrators to capture customer insights and allow them to develop advanced, value-added solutions. Even though fees are continually being pushed down while administrators are being asked to provide more for less, administrators must still to respond proactively and embrace technology so they can remain competitive in serving their fund manager clients, protect their margins, and expand their offerings. If administrators maintain a ‘wait-and-see’ orientation, they run the risk of finding themselves left behind.


We are at somewhat of a physical-to-digital crossroads, so now is definitely the time to invest in technology. Blockchain solutions have the potential to automate a significant portion of the fund administrator’s role in the future. Administrators will be better equipped to deal with threats if they can more easily be made aware of them and be better able to respond to them proactively by harnessing the power of disruptive technologies for their own benefit.

Outsourcing is still expected to be significant in the realm of fund administration. Different forms of outsourcing solutions are starting to emerge away from traditional business processes. With data, regulatory, and technological requirements expanding and growing more complex, the industry has seen increased demand for data analytics and consolidation solutions and infrastructure-as-a-service. Outsourcing risk management and certain processes and activities, however, remains off-limits given that the ultimate oversight and responsibility to clients and regulators lies with the fund administrator. Nonetheless, regulatory compliance processes can still be automated in-house.

As administrators continue to reduce costs, gain efficiencies of scale, and keep up with the pace of change, they will continue to leverage traditional and new-age outsourcing solutions. Therefore, asset managers must be aware of and be prepared for these changes, and more importantly, know what options are available to them so they can provide the most optimal and cost effective fund administration services to their investors and clients, and ultimately remain relevant and viable.