Client money rules are potentially the most frightening for firms and can involve really substantial fines. However, custody arrangements at platforms and wealth managers have often evolved organically, especially where firms have grown through mergers or acquisitions.
For platforms and wealth managers, the handling of client money is treated with utmost seriousness, but there is something to be said for rethinking how it’s managed altogether. Putting third-party funds custody into the hands of specialists with expertise and scale is a route that’s been taken by some. It is an area that we’ve looked at recently, in a white paper sponsored by Clearstream. We wanted to understand how companies think about it, and whether there’s an appetite to do things differently.
Invariably there’s inertia and reluctance to move away from established practises, not to mention scepticism about experts pushing outsourced services. But there are significant advantages of handing over the custody of third-party funds to a global custodian and keeping the internal focus on the business of wealth management and servicing clients.
We found that platforms and wealth managers vary in their approach to third-party fund custody. Some do it all in-house, some outsource entirely and others take a hybrid approach.
With margins under pressure, efficiency gains are all the rage and back-office arrangements are getting more attention. There may be room for improvement, particularly where systems have come about through a combination of pragmatic decisions and historical accidents. The added incentive of firming up client money practises is a significant bonus.
Our latest white paper, Meeting custody needs of platforms and wealth managers, is available to download free of charge on our website.