Subcustodians Have Room for Improvement, Say NeMa Attendees

At NeMa Americas in New York, 60% of attendees said that their subcustodians meet their expectations for service, but the overall results indicated there was room for improvement.

In a flash poll taken at the conference, only 10% said their subcustodians exceed expectations, while 19% said they fall below expecations, and 12% specifically said there is a need for improvement. In terms of the market information provided by subcustodians, only 18% said they receive too much.

In order to meet or exceed expectations, subcustodians need to provide “extraordinary client service,” said Louis Schwartz, senior vice president, network management, Northern Trust. In the information age that we live in today, better service often means faster response times. “How many times have you sent an email and the response is ‘I’ll get back to you tomorrow.’…Being able to wait 24 hours for a response isn’t the case anymore,” said Schwartz. “What I would like to see is [subcustodians saying], ‘Here’s what I know today. Can I get you more information tomorrow?’”

“It’s not just what [information] is provided; it’s how it’s provided. Is it organized in a way that you can delve through it?” said Marilyn Lipton, director of global network management, Institutional Client Group, Citi.

Schwartz also suggested that subcustodians should have “a value-added website.” “If you are not there when I need information, can I go to the website to get that information myself? It never replaces contact interaction, but it enhances the service,” he said.

Attendees also answered the question of how much price factors into their choice of subcustodian, with 54% saying it was only a component of their choice, 37% saying price is very important, and 9% saying that it’s not a key factor.

“At the end of the day, the way your account is managed is the end-all-be-all, but pricing is right there,” said Lipton.

Panelists also discussed how pricing should be structured. In terms of unbundled versus bundled pricing, there is balance between transparency and simplicity. While unbundled pricing increases transparency, “the problem is when you get too detailed that the details get so complex that you don’t understand what you’re getting charged for,” said Lipton.

If there were more of an industry-wide agreement on pricing, then bundled pricing would be easier to accept. However, “we don’t have a way to systematically synthesize information on pricing models…more transparency or standardization would be really helpful,” Lipton added.

The survey also asked, in the context of MILA (Chile, Colombia and Peru’s market integration), whether a subcustodian has to be fully centered in a local market or if it can service some elements from outside the specific market. 20% of attendees said it’s acceptable to perform services regionally, while 27% said the subcustodian had to be local. The majority, 53%, said that as long as certain functions, in areas such as product, are performed locally, then a regional subcustodian is fine.

Michael Perkins, Vice President, Network Management at State Street says his firm does not make market subcustodian appointments on a regional basis but may factor the utilization of a regional service center as part of the decision-making process.

Some of the positives of a regional subcustodian include greater harmonization of market information and reporting, said Perkins. Plus, he said, there’s an advantage from a perspective of scale. “If there’s a volume spike in a particular market, having the ability to move resources around and having the flexibility of a staff large enough to dedicate resources to where it is needed is important.”

A downside, however, can be the dispersing of work within the service provider from a regional service center to the local market. “When certain functions are performed from a regional hub, you may lose some relationships with market participants such as central depositories, tax agents, and issuers,” he added.

So while the majority of subcustodians are meeting expectations, providing timelier, relevant information and managing market relationships can go a long way toward exceeding expectations.