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Evolving Industry: Emerging trends in custody servicing

At its core, custody servicing was designed to follow trades through their settlement cycle, initially focused on the safekeeping of assets. As the industry has evolved, so have the expectations of a comprehensive custody service offering.






Technology has become the new foundation, critical to the offering. While the latest technological advances have become a baseline expectation, burdensome fee pressures are forcing many fund companies to accept “one-size-fits-all” solutions in order to contain costs. Strong custody partners should be able to deliver both the innovative technologies asset managers expect and the high-quality service they deserve — minus the high price tag.

Change is the new normal

Asset managers as well as service providers today benefit from the ability to quickly adjust their approach and adapt to the ever-changing environment. Popularity of alternative investments, increasing regulatory changes, socially responsible investments and qualified opportunity zone funds to name a few, are all causing pivots and innovations in servicing. Custody providers are finding themselves in a unique situation. We must continuously offer the best standardized, straight-through services afforded by the latest technology, while also being flexible enough to adjust to regulatory, operational and market demands.

Importance of Innovative Technology

New and improved tools in the custody space such as online portals, straight-through processing, and point-to-point system integrations are delivering efficiency and moving the industry forward.

Today, asset managers have easy access to their custody account holdings, providing transparency and control in a self-service framework. Real-time online access allows for speedier turnaround times and on-demand trade status updates. Several custody providers also offer additional services such as performance reporting, data extract capabilities, tax lot information and historical data.

With straight-through processing, the goal is to process trades with minimal manual intervention, helping to ensure accuracy and increase speed to market. Many custodians provide electronically enabled systems that allow for industry-standard formatted messaging. However, some funds need a “spreadsheet-like” environment, granting nimble and customizable information flows. By providing flexibility on implementation of technology – whether by means of uploading files, customizing transmissions, or the combination of online platforms – custody clients are equipped to instruct trade information, manage cash movements and access data based on their varying degrees of sophistication.

While some service providers are focused on providing custody-only solutions, many providers offer bundled solutions incorporating custody, accounting and administration in a one-stop shop.  It is imperative to find a custody provider that has connections with many of the most prevalent accounting systems, whether through an in-house solution or through external partnerships, in order to automate file transmissions and reconciliations between the two.

Expect More than Standardized Solutions

When it comes to technology, a one-size-fits-all approach is simply obsolete. Funds exist in all shapes, sizes, and investment strategies. They require providers who can deliver great customer experiences by being adaptable when necessary, and who can also deliver industry standard procedures when needed.

In a world where providers are hiking fees and forcing standardized solutions, technology remains a differentiator. But increased technology should not automatically come with a high price tag and lower service levels. Technology offerings must be paired with the human element and asset managers should expect support from a responsive service team that can quickly work to resolve concerns and understand the nuance of their business.

Securities Lending

For the first time since the 2008 recession, securities lending is regaining popularity. Securities lending presents asset managers with the opportunity to enrich market returns on securities held in their portfolios. Because individual funds have their own objectives, strategies, and risk tolerances, asset managers need to find a partner who will work to develop a customized program that aligns with those individual objectives. Customization, risk management, service model, credit capacity, lending and earnings activity reporting, and pricing are all factors to consider when selecting a securities lending partner.  

Selecting the Right Partner

When selecting a partner, it is important to work with a company that understands a one-size-fits all approach doesn’t work in today’s environment. A custody program should be structured to fit your unique needs and help ensure a simple and seamless experience. In addition, open communication and exceptional service should be mandatory in all partners providing technology solutions for custody servicing. During the selection process, technology and service should be top-of-mind to ensure your funds are set up for success. Service and technology work in tandem with neither being a substitute for the other.

Visit UMB Institutional Custody’s website to learn more about our global and domestic custody solutions and connect with the team.graphic line break

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When you click links marked with the “‡” symbol, you will leave UMB’s Web site and go to Web sites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other Web sites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.