The trend of unbundling securities lending and custody services has slowed or even reversed, according to a survey by Finadium of U.S. plan sponsor perceptions of the custody, securities lending and collateral management industries.
Finadium notes in US Plan Sponsors on Securities Lending, Collateral Management and Custody in 2012: A Finadium Survey that plan executives utilize securities lending to pay for custody services, and that custodians determine fees based upon whether or not plans participate in securities lending programs with them. While an outside provider may mean more revenues, the difficulty of multiple negotiations with more service providers, including disrupting their important custody agreements, can be more trouble than it is worth, Finadium notes.
According to Finadium survey data, 59% of plan sponsors have unbundled or intend to unbundle the services this year, compared with 61% in 2011 and 70% in 2010, when unbundling peaked. Unbundling held at 65% in 2009 and 48% in 2008.
Finadium stops short of saying the unbundling trend has reversed, but says the trend has at least stopped its ascent.
The survey also found that the growing use of alternative investments by plan sponsors is putting a strain on their relationships with their custodians, because reduced assets in custody mean lower revenues for custodians. Furthermore, plan sponsors say only three or four custodians exist that offer them the ability to service increasingly global portfolios of derivatives, offering them few alternatives.
Custody fees for U.S. plan sponsors polled averaged a rise of 0.5 basis points per dollar under management this year, up from 0.4 basis points last year.
The full report is available on the Finadium Web site.
(CG)