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Three Tough Questions to Ask Fund Administrators

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The fund administration industry is changing at a faster rate than I’ve ever seen during my 30-plus years in the industry. Those changes include offshoring, ownership changes, mergers and divestitures and, of course, the fund families and products offered. As the landscape of the asset management industry has changed, so has the shape of the fund services industry that serves it. Perhaps the only true constant in asset servicing right now is this: ultimately, the work has to be done.

Tools vary. Service models vary. Technology varies. But at the end of the day (literally), a fund accountant must calculate the net asset value whether he or she is located here in the U.S. or abroad.

For a fund services provider to thrive, this work must be done accurately, efficiently and at a competitive fee. There are no “ifs,” “ands” or “buts” about any of those factors. Fee pressure has impacted the entire industry, leading to changing service levels and pricing models that are creating opportunities for established firms to consider converting away from their legacy providers now more than ever before.

In addition to accuracy, efficiency and cost, there are some other factors also worthy of close consideration. One example is the degree to which bringing multiple services under one roof—accounting, administration, medallion distribution, custody, escrow, cash management, lines of credit, etc.—may generate efficiencies that save money and time.

And then there are what I call “three tough questions” that address more subtle factors that could have significant bearing on your experience working with a team and the firm that stands behind it:

Most firms wouldn’t simply answer this question with a flat out “no.” But if you’re a smaller asset manager talking to a firm that serves the industry’s largest fund families, then you’re likely to hear one phrase or another that equates to “no.” Look deeper into an organization to learn about the depth of talent and experience of the team. Are they developing talent and building career paths, or churning through employees? How strong is the team behind your main contact? Remember, even if your primary contact remains consistent, that person’s service is limited by the strength—and the potential turnover— of the team standing behind him or her.

In my experience talking to fund management executives, the challenges with offshoring tend to focus on the areas of day-to-day communication and, more broadly, relationship management. Fewer firms are offering the proven singlepoint- of-contact service model. When operations are complicated by geography, that may simply cease to be possible. You may be willing, of course, to sacrifice some communication efficiencies for lower fees. But as the industry evolves, it’s important to realize that such sacrifices may not be necessary.

This may seem like an intrusive question, but it’s an important one. The asset servicing industry has been changing fast and will continue to do so. Consider, for example, that a provider owned by a private equity firm is likely to be sold within five to seven years. That’s not speculative; it’s simply the nature of private equity. Are there other corporate-level changes to be aware of? Explore these issues and think through what types of transition—and potentially disruptions—you are comfortable accommodating in your plans.

Keep in mind what I noted above, that ultimately, the work has to be done. Specifically, as you evaluate proposals, be certain you understand exactly what services are included at an offered price. Don’t assume you have to give up a well-proven service experience to obtain low fees.

So, as you evaluate your needs and conduct your due diligence, be sure to ask us those “three tough questions”—and anything else you might like to know.

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