Comparing fund administrators? Ask three tough questions

April 11, 2022 | Greg Drose | UMB

As the asset management industry has changed, so has the fund services industry that serves it. Those changes include offshoring, ownership changes, mergers and divestitures. For asset managers, this may mean changes to service models—which may in turn prompt managers to review their business needs and service providers. In that process, it helps to ask some tough questions.

Perhaps the only true constant in asset servicing right now is this: ultimately, the work has to be done. Tools vary. Service models vary. Technology varies. But at the end of the day (literally), a fund accountant must calculate the net asset value whether he or she is located here in the U.S. or abroad.

For a fund administrator to thrive, this work must be done accurately, efficiently and at a competitive fee. There are no “ifs,” “ands” or “buts” about any of those factors. Fee pressure has impacted the entire industry, leading to changing service levels and pricing models that are creating opportunities for established firms to consider converting away from their legacy providers now more than ever before.

In addition to accuracy, efficiency and cost, there are some other factors also worthy of close consideration. One example is the degree to which bringing multiple services under one roof—fund accounting, fund administration, investor servicing, distribution, custody, escrow, cash management, lines of credit, etc.—may generate efficiencies that save money and time.

And then there are “tough questions” that address more subtle factors that could have significant bearing on your experience working with a team and the firm that stands behind it. In my 30-plus years in the industry, these questions stand out as ones asset managers often don’t ask—and may wish they did.

Question 1: Do we get your “A” team?

Most firms wouldn’t simply answer this question with a flat out “no.” But if you’re a mid-size asset manager talking to a firm that serves the industry’s largest fund families, then you’re likely to hear one phrase or another that equates to “no.” Look deeper into an organization to learn about the depth of talent and experience of the team. Are they developing talent and building career paths, or experiencing rapid turnover? How strong is the team behind your main contact? Remember, even if your primary contact remains consistent, that person’s service is limited by the strength—and the potential turnover—of the team standing behind him or her.

Question 2: Will we have a single point of contact?

In my experience talking to fund management executives, the challenges with offshoring tend to focus on the areas of day-to-day communication and, more broadly, relationship management. We have heard from certain clients that their offshore service teams weren’t able to respond in a timely fashion during periods of intense business stress. Fewer firms are offering the proven single-point-of-contact service model. When operations are complicated by geography, that may simply cease to be possible. You may be willing, of course, to sacrifice some communication efficiencies for lower fees. But as the industry evolves, it’s important to realize that such sacrifices may not be necessary.

Question 3: How might your ownership structure affect our experience?

This may seem like an intrusive question, but it’s an important one. The asset servicing industry has been changing fast and will continue to do so. Consider, for example, that a provider owned by a private equity firm is likely to be sold within five to seven years. That’s not speculative; it’s simply the nature of private equity. Are there other corporate-level changes to be aware of? Explore these issues and think through what types of transitions—and potentially disruptions at your fund administrator—you are comfortable accommodating in your plans.

Keep in mind what I noted above, that ultimately, the work has to be done. Specifically, as you evaluate proposals from fund administrators, be certain you understand exactly what services are included at an offered price. Don’t assume you have to give up a well-proven service experience to obtain low fees.

So, as you evaluate your needs and conduct your due diligence, be sure to ask us these tough questions—and anything else you might like to know.

Learn more about UMB Fund Services and how we can support your firm’s registered and alternative investment fund servicing needs, or contact us to be connected with a fund services team member.