Asset owners and asset managers have once again shared their views regarding their asset servicing providers through their participation in the 2024 Asset Servicing Insights Asia.
This year’s survey by Asset Benchmark Research covered over 220 financial institutions including asset managers, financial intermediaries, asset owners, and issuers across Asia. And the results show that costs, one-stop-shop solutions and cybersecurity are among their major concerns.
Lower costs and fees
Asset owners and asset managers are seeking lower costs in asset servicing. This year, 52% of the respondents consider fees/costs as one of the top three areas that need improvement, up by 21% compared to last year.
Top three areas for improvement in asset servicing
Source: Asset Servicing Insights 2024
When talking with service providers in the region, The Asset has gathered that China is one of the markets where fee competition has been quite intense. Local custodian banks have been playing the size game, lowering their fees and sometimes even offering “zero fees” for the purpose of grabbing the largest market share they can possibly get.
Foreign custodian banks, especially those with local fund custody licences, have been forced to play the game when competing with local Chinese banks. These foreign players normally don’t consider market size as a key performance indicator, but this year, some of them have indicated that they are faced with such a challenge as well.
In fact, there’s a growing attention attached to pricing, according to this year’s survey, with 25% of the respondents considering this as one of the three most important factors when choosing a custodian, up by 32% compared to last year.
Similar trends are observed in fund administration services. There is a huge increase in the percentage of respondents seeking cost reduction when outsourcing middle- and back-office functions – up by a significant 75% compared to last year, or 28% of the participants this year.
Cost is also a concern for those asset owners and asset managers who have not outsourced their mid-office or back-office operations. Concerns over higher costs (44%) are becoming more prominent in this category, with the number of respondents who cite this concern having jumped by 76% this year, the survey findings show.
One-stop shop
Asset owners and asset managers seeking additional services other than safekeeping assets – in other words, those expecting a comprehensive suite of services in a one-stop shop – have grown by a significant 75% this year, standing at 28%.
Three most important factors when choosing a custodian
Source: Asset Servicing Insights 2024
The most demanded additional services when choosing a custodian bank are fund administration (67%), clearing/settlement (48%), brokerage services (21%), and corporate actions processing (21%), the survey finds. Capability in transfer agency (15%) and foreign exchange/derivatives transactions (14%) are also important.
In addition to competence in providing additional services on a one-stop platform, operational efficiency and service quality continue to be key considerations for asset owners and asset managers, with stable 53% and 51% of respondents, respectively, choosing these factors.
On the fund administration side, the top reasons for outsourcing middle- and back-office operations have been stable, with operation efficiency (59%), allowing flexible operating models (39%) and integrated solutions (29%) being cited most widely.
Top three reasons for outsourcing middle and back office
Source: Asset Servicing Insights 2024
In general, asset owners and asset managers are expecting their service providers to enhance distribution channels, with 41% of the respondents choosing this as an area for improvement, up by 46% compared to last year.
Cybersecurity concerns
Concerns over cybersecurity and safeguarding of sensitive information (50%) emerge as the top reasons why asset owners and managers are not outsourcing their middle and back offices. Also, the number of respondents who cited these reasons has increased by 50%.
Why do you not outsource your mid-office or back-office operations?
Source: Asset Servicing Insights 2024
Meanwhile, as service providers upgrade their capabilities and enhance their service quality, risk management is becoming less important for asset owners and asset managers to consider when outsourcing fund administration operations – this year 21% of the respondents chose this as the one of the top reasons, a drop by 22% compared to last year.
This echoes another survey finding – service providers are becoming more transparent, providing more fund administration services and solutions to clients. The respondents choosing insufficient information or not aware of solutions from service providers as the reason for not outsourcing middle- and back-office functions has dropped by 21%; those who cite service providers who cannot provide outsourcing solutions has dropped by 25%.
