In a recent webinar, our Executive Chairman, Keith Hale, and Stuart Richford, Group Commercial Director of BDO, discussed the findings of this year’s Future Focus Report and the implications for the corporate services, trust and alternative fund administration sector.
As firms grapple with the rapid digitalisation and automation facing the industry, a dichotomy is emerging between belief and behaviour around firms’ investment in technology and their view of the value of digitalisation, which combined are acting as a barrier to action.
Industry comparisons show that the corporate services, trust, and alternative fund administration industry lags way behind other sectors of financial services in terms of investment in technology. Research in the banking sector shows the typical spend of companies as a percentage of revenue was between 7% - 12%. TrustQuay’s research based on customer feedback has identified the typical corporate services, trust, and alternative fund administration spend is at best between 4% - 6%.
“Our research shows an industry that is lagging behind other areas of financial services in terms of technological innovation. But the urgency and importance of automation and digitalisation is clearly recognised among players, with nearly all firms agreeing it needs to accelerate in order to increase efficiencies and deliver a better digital experience to clients.” - Keith Hale
“If you look at the large American banks, they spend 10% of their revenue on IT, of which around 30-40% is on change projects rather than just run-the-bank initiatives. For corporate services, trust and fund administrators, I think a one-third spend on change should become a useful rule of thumb moving forward.” - Stuart Richford
A similar dichotomy is true when it comes to attitudes to technology. Nearly all respondents (95%) said that technology should be viewed as an investment in growth, but only a third (32%) said their own firm spends enough on technological innovation.
“While there is a fundamental belief that digitalisation is the right thing to do, only a very small percentage of firms currently feel they are digital leaders. Without the use of specific KPIs, it is not a surprise that many firms agree that they see the wider benefits of digitalisation, but lack a clear definition and understanding of the return on investment it can bring.” - Keith Hale
“If you look at a common industry model, a modest improvement of around 3% of cost to serve and a 3% opex improvement leads to an 84% improvement to the enterprise value. Improving efficiency is an enormous unlocker that goes straight to your EBITDA, straight to your gross margin and straight down to the bottom line.” - Stuart Richford
The widespread dichotomy between belief and behaviour within corporate services, trust and alternative fund administration appears to be acting as a barrier to action, and therefore an obstacle that is preventing firms from enjoying the benefits to the bottom line that can be delivered by digitalisation.
More work, therefore, needs to be done to change attitudes and technology providers need to help corporate services, trust and alternative fund administrators by providing the tools and capabilities to make a clear assessment and business case for investing in technology.
“Digitalisation is not just about feature functions and the cheapest price; it's actually about how much efficiency you’re going to gain, how much revenue is going to increase, how much risk is going to reduce and therefore, ultimately, how much you’re going to improve the enterprise value of the organisation that you're building.” - Keith Hale
“The value of getting it right is staggeringly enormous, but I don't think we are articulating technology in those terms, and I think that's something we need to get better at. Innovation doesn't need to be big - there are 20, 30, 100 small use cases in every organisation I've ever walked into. By doing so, you can unlock some quite enormous value, and you're on your digitalisation journey without even realising it. So, it’s not just the big top-down things - innovation at a grassroots level is also key.” - Stuart Richford
While the findings of this year’s Future Focus Report show a current dichotomy between belief and behaviour within the industry, it is clear that corporate services, trust and alternative fund administrators do believe in the value of digitalisation. Working in partnership with technology providers, the future of the industry will become more digitalised and firms will increasingly be able to unlock the value that this will bring.
Keith is Executive Chairman at TrustQuay