The rules are usually pretty clear in this free market economy of ours: you provide a service to somebody, that somebody pays you for it.
Trust a custodian to do it differently.
Unbalanced understands that one of Australia’s largest funds managers has been running its eye over outsourced providers of back and middle-office services. One player is so keen to unseat the incumbent provider, we understand they’ve put a large cheque on the table, which they’ll sign and give to the manager if it agrees to novate to them.
Apparently this practice of paying your new customers is standard business in the custody world. The thinking goes that because switching backoffice providers is such an expensive and stressful process, no-one would ever do it without a little something to ease the short-term pain.
The upfront payment also usually buys a longer-than-average initial contract period, perhaps five instead of three years, so the custodians are hardly being charities (although with the margins they get on sub- and a lot of master custody business, some custodians will tell you that’s exactly what they are).
Now if only the custodians would convince their colleagues in retail banking to implement a similar kind of cheques-for-custom scheme, the world would be a better place.
