Is An Integrated Model the Answer for Asset Managers?

Nearly two-thirds of asset managers use or are considering using an integrated service provider, but asset managers need to make sure that they find a good match in their partner.

The Covid-19 pandemic created operating model challenges that most had never experienced.  As a result, many asset managers turned to their service providers for support – reinforcing the need to build relationships based on trust, transparency and the desire to achieve a specific outcome.  In some cases, this sparked an evolution in how these key relationships are envisaged.

Asset managers are streamlining key service provider relationships, simplifying their operating models and using fewer firms across more functions. A growing number of asset managers, however, are going further, accelerating the trend of looking for integrated providers that offer full front-to-back models.

An integrated front-to-back solution

Front-to-back models have emerged in recent years to offer a complete operational outsourcing solution, and they are increasingly finding favor with asset managers. A survey of 267 asset manager professionals conducted by Ignites* on behalf of BNP Paribas found some 64% of respondents either currently use an integrated, front-to-back service provider model or would consider doing so.

Asset managers highlight simplification of the operating model, quality, cost/efficiency, and control as the top factors when deciding to use an integrated model.

It becomes a question of how a firm’s strategic resources are best allocated to value-add investment and distribution activities, versus leveraging third parties for more routine processes across the front-to-back operational spectrum

explains Jeffrey Zoller, Director, US Fund Services at BNP Paribas.

Choosing the right service provider

While many asset managers are already using or considering using an integrated, front-to-back model, it remains a relatively new concept for the market. It’s important, therefore, to ensure that asset managers ask the right questions and understand what their chosen or potential service provider has in the pipeline.

Moreover, while quality, cost and control were seen as the top factors influencing firms’ decision to consider an integrated offering, these were also the top factors for firms that have decided not to pursue this model.

“It’s important to recognize that front-to-back models are new and still maturing,” says George Martinez, global relationship manager for BNP Paribas Securities Services. “Understanding the level of maturity of a front-to-back model is essential.”

Particularly, asset managers must choose a service provider that understands their needs and has a model that works for them.

As you move into an integrated model, you’re increasing the levels of complexity with your service provider. This is where having a high-touch service with clear communication and transparency is important, because if it isn’t you can get lost in the complexity of the front-to-back model.

says Jeffrey Baccash, head of global ETF solutions at BNP Paribas.

Positioning for growth

Integrated service providers are also helping asset managers position for further growth, particularly service providers with experience across a range of products and countries. These providers offer clients resources to explore new geographies and find support wherever they choose to invest.

“Some asset managers may want a provider with expertise and capability in other countries because it makes raising assets abroad easier,” explains Martinez. For managers that hold global assets, but aren’t launching products abroad, he says it’s better to have a global custodian with boots on the ground, so they’re not reliant on a sub-custodian.

“If you are going to invest in an integrated model, make sure it’s one that works for your organization in many markets, not just one,” he adds.

The opportunity to add value extends beyond asset servicing capabilities.  Global firms with banking, financing, and other value add capabilities are better positioned to offer a broader value proposition to help clients achieve their ambitions in terms of new product development and cross-border distribution.

As one of only a few bank providers with an extensive network to cover the largest markets, we have an integrated bank model with securities services married to banking and financing capabilities. We have the global reach and a universal bank offering that we’re willing to put to work for our clients.

says Martinez.

*Ignites, a Financial Times service, in partnership with BNP Paribas, conducted a survey in Dec 2021 of readers who are involved in operations, work with key service providers or oversee those who do to participate. 267 valid responses were received to show this snapshot of how the industry has changed.

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