With less choice of custodian banks available on the market, London-based Amaces believes there is increasing need for its new analytical product to help investors analyse and benchmark the level of services they receive from custodians.
The process of reviewing a custodian every three to five years through an RFP (request for proposal) is not necessarily the best method of finding a provider.
“We believe this is a fairly ineffective way of choosing a custodian, as in effect what you are doing is going through a search process listening to people make promises,” says James Economides, who, with Aidan Dennis, formed Amaces and just launched its CMS services. “While this has some value, in a much tighter market place, of more value is to recognise that you are likely to be with the same service provider for a number of years, and that it is better to track real outcomes regarding the service being obtained, by comparing this with the service others are receiving.”
CMS provides a structured way of looking at all the key metrics that matter to a pension fund through a clear, objective and neutral way of benchmarking their experience and comparing it with the experience of others, he claims. “This tool is not a brickbat to be used to beat up your custodian.”
The aim is to highlight deteriorating trends, pinpointing what might require attention and highlighting who is causing the problem. “It is not always the custodian’s problem when things go wrong – it could be a fund manager, a market issue or even the client themselves,” he points out. The ultimate objective to improve the level of service.
The first module covers the core custody and treasury functions and services provided to the investment community and treasury managers. This is being used by 30 clients, of which over 50% are pension funds, he claims.
The service, which is delivered through a web-site, is on an anonymous basis, without the details of the custodian or the clients being disclosed. But through a monthly report, participants will be able to monitor their experience across key custodian services and to how their custodian is performing on their accounts compared with with the ‘trailing’ 12-month comparison and what the trend is.
It also shows how their experience compared to other clients of the same custodian, to the peer group of other pension funds in CMS, and to the total universe of clients in the service. As the numbers using the service grows, “clients will be able to choose their peer groups, eg pension funds above or below E3bn, provided there are five others in the category to make up the group.”
The headline areas covered are transactions, reconciliations, income, taxation, corporate governance, foreign exchange, interest conditions and securities lending, measured against the clients’ own experience over a 12 month period, and against other clients of the custodian and the best client experience in the universe. Then clients are able to ‘drill down’ through a series of key performance indicators, and more detailed examination of their figures across the different headings.
“Probably the most useful comparison is to look at your experience compared with the peer group best and worst,” says Economides. In addition to the monthly reviews, there is an annual review showing where “annual value for money report” designed to compare all revenues with the quality of service provided. “If you are paying top dollar, are you receiving top dollar service? And how does your custodian compare with the marketplace?”
The CMS concept is particularly aimed at trying to improve levels of service and performance where they are not up to the best, he stresses. It gives clients the information to run their relationship with their custodian.
The service obtains the data used to carry out the analysis from the client’s custodian. “It is not a problem to extract the data from all the major custodians. Then we go through a series of quality checks to ensure data is comparable.” The report on the website is made available to the custodian as well as the client. “We feel both sides should have this information.”
So far the outcome shows that no one custodian has dominance across the board in service levels. “No one custodian is best at everything – they all have areas of relative weaknesses and strengths.” There is also variations in the level of service to different clients from the same custodian.
CMS is available on subscription, paid by the client. The charging structure is based on the number of custodians and number of fund managers and not size of assets. “So if you have one custodian and six fund managers, which is not untypical for mid-sized funds, it would cost E18,000 per annum.”