Whether super funds are more willing to switch custodians and whether that is driven by a dissatisfaction with relationships or a capability shift was the topic du jour at Investment Magazine’s Operations Conference.
Increasingly complex global market requirements and a broader range of instruments is behind migration to new service providers, according to Jonathan Green, head of account management at National Australia Bank’s Asset Servicing.
However changing providers is resource intensive and costly for all stakeholders, he warned.
“Essentially different custodians have different unique selling propositions and are fit for purpose for a particular fund.”
Queried on the eight providers currently servicing the custodial market, Green said there were enough differences between them to sustain that number.
“People may consider changing custodians for a whole host of reasons – it could be that a custodian could provide a particular capability or service standard.”
However, Green downplayed suggestions that funds were jumping ship and the average length that funds stay with their custodians is falling
He claimed the frequency of change is “probably close to the historical average”. “I think what’s happening is you have a whole host of funds who are looking for something they might not be getting and their conversations have heightened the perception that they are prepared to make a move.”
This view jibes with Jo Leaper, JANA’s senior manager of operational consulting.
In her view, while changing providers is considered ‘easier’ than it was previously, the large rush of change that the industry saw several years ago has eased.
“Funds are certainly more conscious of whether their arrangements remain appropriate, and that may keep the public perception of high frequency change apparent.”
Moreover, she pointed out that custodians are doing more retention work than they had undertaken historically.
“”If changes are taking place, there is more technology in the market to help with the process, particularly with data cleansing.”
That said, Leaper says it can be harder to give smaller funds (under $3 billion) a choice of custodian, as there’s a lack of competition in this space.