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Jumping the hurdles
North American mutual fund clients have a relatively high opinion of the levels of service provision offered by their administrators . Maintaining that impression in the year ahead will be no mean feat .
Global Custodian ’ s 2016 Mutual Fund Administration Survey found that despite individual differences in provider strategy , common themes emerged on the industry trends that would have the most impact over the following 12 months . A year later and some of the same bugbears identified then persist . The growing regulatory concerns from the US with the DOL fiduciary rule and liquidity risk management rules from the SEC are , for example , still cited by providers for their effect on the fund admin business . On the DOL side , in particular , perceptions of how MFA services may be affected remain in contention with the delays to date in implementation . The Department of Labor ( DOL ) Fiduciary Rule , originally due to be phased in between April 10 , 2017 and January , 2018 , but now delayed until June , 2017 expands the definition of “ investment advice fiduciary ” under the Employee Retirement Income Security Act of 1974 ( ERISA ). This will impose greater ethical and legal obligations on all financial professionals working with retirement products . In preparation for the regulations , a number of providers have told Global Custodian that the creation of new share classes was in the offing . “ We are seeing a number of clients moving forward with creating new share classes , commonly referred to as clean shares , which will meet new DoL rules ,” said one provider . The delays have , however , put work that administrators , transfer agents , distributors and clients have nearly completed on hold . “ Everything is in flux at the moment and here in the US we ’ re in a period of uncertainty ,” added another administrator . “ This said , most firms are moving forward preparing to be compliant with the proposed rules so at some point in the future , whether this be 6 months , 12 months or 18 months , they will be ready ,”. Some intermediaries are taking advantage of the regulatory uncertainty to potentially reduce the number of funds on their platforms which helps them from a cost perspective and steer flows to their largest fund partners . Beyond DOL , additional liquidity requirements will also have an effect on the MFA space notably the new Investment Company Reporting Modernisation and the Liquidity Risk Management Program Rules adopted by the SEC in late 2016 . The new rules are designed , amongst other things , to improve the access and quality of information available to the SEC and investors about fund investments . Under such rules , the need for increased data automation will increase making the data component of service more important for MFA providers . In spite of such challenges however , findings from this year ’ s survey suggest that timeliness and accuracy of regulatory reports , compliance effectiveness and responsiveness to regulatory changes has increased . Increases of 0.30 , 0.27 and 0.24 points respectively indicate that the MFA space has developed sufficient resilience to deal with whatever changes come at it .
Technology innovation Beyond regulations , providers are getting to grips with the digital age with a specific focus on technology implementation . A key distinction seems to occur over whether the technology investment is going into internal infrastructure or whether it ’ s heading for the client facing developments . The survey results point to a decrease in perceptions of quality and ease of use of client-facing technologies . Some providers have speculated that such a decrease is down to providers prioritising internal technological infrastructure developments in light of regulations , leaving client-facing technologies to take a backseat role . One MFA noted that the decrease in score in this area notwithstanding , its own technology priorities will in the near term be towards client-facing activities with ease of access to reporting being a particular focus . “ Our investment is leading towards client-facing and we think reporting access is going to be much more user – friendly ,” says the provider . “ With client-facing technology , it ’ s critical to understand the exposure risks and ensure that proper security protocols are in place . We need to ensure all of the proper security and procedures are in place to make the effort successful .” Another provider points out that meeting client demands for streamlined access to more information has time and cost implications which need to be factored in alongside increased compliance and regulatory demands on internal infrastructures . “ The number of channels through which clients are seeking access , whether it be through more traditional means or mobile technologies such as tablets and phones has evolved rapidly . This requires numerous streams of development of platforms to occur concurrently which is both timely and costly ,” says the provider . While the MFA survey 2017 suggests that administrators are on top of the service challenges they are facing , the commercial , regulatory and operational environment in which they are operating will require continued agility .
72 Global Custodian Summer 2017