As the financial services industry moves toward automation and straight-through processes, there is an increasing need for wealth managers to do the same. Sebastien Chaker, managing director, Asia at Calastone, writes exclusively for this publication.

As the financial services industry moves toward automation and straight-through processes, there is an increasing need for wealth managers to do the same. This is especially critical in Asia, where most companies remain reluctant to outsource their fund processes. Sebastien Chaker, managing director, Asia at Calastone writes this piece exclusively for WealthBriefingAsia.

With an estimated 15 per cent take-up rate of straight-through processing of fund orders, Asian markets are significantly behind their European and US counterparts. 

Whether this resistance is cultural or not is difficult to ascertain, but solely from a business perspective, wealth managers, private banks and other distributors of investment funds products could do worse than be reminded of the core benefits of automation. 

As the world continues to surge forward with technological advancements, whether for personal use or business, the cost-versus-reward case has to stack up.

The problem with traditional methods

In terms of the alternatives, many buyers of funds tend to remain using manual processes - faxes, predominantly. The traditional options to automate fund orders tend to be the International Central Securities Depositaries. Although these remove the headache of having to tackle the high levels of manual order processing, they still involve an element of manual processing and involve a high set-up and migration cost. 

While the problem has been removed from the business, simply by outsourcing it – it hasn’t dealt with the issue of STP, or lack thereof. Very few wealth managers in Asia have taken that route as they are usually reluctant to outsource their fund processing, subsequently adding an additional layer of risk and costs between them and their fund managers and relinquishing a degree of control over the operations.

The other traditional solution to automate fund orders would be using the SWIFT network; however, the common reluctance here is over the cost of outlay. With a hefty initial investment, businesses need to be absolutely sure that the return on that investment is going to deliver accordingly, and that the fund managers it appears are connected, are indeed available via SWIFT’s network. 

There aren’t only the initial technology system build costs to consider, but also the deployment and testing of each bilateral connection with fund managers and transfer agents. This provides a technical solution but still requires a degree of ‘DIY’ with each connection. Companies need solutions that reduce the complexities of point-to-point access by enabling full connectivity via a single pipe providing access to the whole of the market. Most wealth managers simply won’t warrant that level of initial investment and ongoing project resources because their volumes with each fund managers do not justify the investment.

Why STP adoption matters

In terms of building a reputation for operating in line with the modern financial sector, in an increasingly cost-sensitive environment, wealth managers need to embrace the levels of STP available, perhaps be reminded that making the switch might not be a painful a process as first envisaged.

For instance, by using new technology available, introducing message translation and full interoperability, the move to full automation is easier and can be done in stages that suit the operational objectives and within specific time-frames. Perhaps consider automating orders to a single fund manager, initially, progressively extending to all counter-parties and subsequently move towards settlement or reconciliations automation, for instance. 

In making the shift toward STP, the misconception is that the move needs to be whole and immediate, which is not the case. With this mindset, it is little surprise wealth managers become nervous. Their business flow might be such that an overhaul of their back office feels just too mammoth a task to overcome. And, as they say, "if it ain’t broken; don’t fix it."

With cheap labour costs in Asia you can see the resistance - it’s free to fax my trades so why would I change my process?  With high net worth clients, where their order sizes are far more than an average investor - the element of risk with manual systems is greater and any rejection, order error or transmission delay could have more significant repercussions. However, with greater familiarity, one might consider rolling out STP throughout the whole business, improving efficiencies all round. 

The back end of the order process is often viewed as the poor relation to the front end. Calastone estimates that an average wealth manager spends about 80 percent to 90 per cent of their development budgets on their front end and the back office is something of an afterthought. 

What clients need

Ultimately, clients are (and ought to be) the main priority, and because of the degree of visibility, it is essential to have the best product, the best funds, the best fascia. How it all works in the back is less relevant. 

But the business case is changing. It is getting harder to justify remaining on a manual system. This is a market that is poised for change as firms are being forced to decrease costs, cut staff, and invest in technology and Calastone endeavours to simultaneously take advantage of but also help accelerate that change. With automation, costs are driven down. Regardless of where particular clients sit in terms of their investable wealth, this will have an impact. 

Mass market distributors can reduce minimum investment thresholds opening up your market to the younger, newer generations of investors with more disposable income. The growing middle classes will result in greater client segmentation and see some clients graduating to a more wealth management-style of distributor. 

As costs come down, service levels can improve as focus can be more dedicated to the clients and delivering the best possible outcomes for their future. 

There isn’t going to be an overnight shift. This is about investing in a relationship and a way of working that will deliver unquestionable benefits in five years’ time – exactly as one would hope clients view their relationship with their wealth manager.

A clear opportunity exists to replace manual order processing easily given new solutions available to market. While it is easy to recognise and appreciate the reluctance – given current cheap labour costs in Asia the price of maintaining a manual operating process make sense – we believe that if STP isn’t taken up willingly, market forces will dictate a degree of compulsion or regulatory intervention at some point in the future. 

Therefore Calastone views that the more forward-thinking wealth managers will be taking advantage of these solutions now, rather than waiting until their hands are forced through regulatory intervention that may consume heavy resources and distract wealth managers from their core focus – delivering the best possible service to their valued clients. 

About Sebastien Chaker - Managing Director, Head of Asia

Sebastien Chaker joined Calastone in 2010 to set-up the Luxembourg branch and build Calastone cross-border fund business.  Since January 2012, Sebastien took responsibility for the Asian region and subsequently relocated there in 2013 to set up the Hong-Kong branch and expand the Calastone franchise in Asia.  His career spans over 15 years of experience in the investment fund distribution and servicing space.  Sebastien started his career in 1996 on the fund distribution side at Citibank Int France as a product manager in charge of savings and Investments products (Citichoice). He then joined Euroclear in Brussels in 2000 as a senior product manager to launch the FundSettle platform. He joined Calastone from Brown Brothers Harriman in London where he was heading global Fund Solutions business development since 2007.