The financial services industry – including the wealth management sector – needs to feel the full force of a drive towards transparency and clarity over costs, says the CEO of an expanding international business in the fund industry.

The financial services industry - including the wealth management sector - needs to feel the full force of a drive towards transparency and clarity over costs, says the chief executive of an expanding international business in the fund industry.

Calastone, a company that provides automated messaging, order-routing and other key functions for the global funds business, is positive on how old inefficiencies and lack of price information in financial services is giving way to more clarity.

But there is a great deal more work to be done as the financial sector struggles to recapture client trust, a task made more difficult by recent controversies, Ian Taylor told WealthBriefing in a recent interview. He spoke at a time when the industry was still struggling to grasp the extent of affairs such as the LIBOR-rigging scandal, and US critiques of HSBC over lax anti-money laundering controls. 

Taylor was in ebullient form, as well he might be. He is a joint founder of Calastone, which launched in 2007. Since that time it has signed up dozens of clients such as asset manager big gorillas Goldman Sachs Asset Management (in May this year), Lyxor Asset Management, Fidelity Investment Managers, and Allianz Global Investors. In a potentially vital move back in March last year, RBC Dexia Investors Services Asia and Calastone formed a strategic alliance to increase investment fund automation in Asia. Besides the usual plethora of long-only funds that tap into its network, the Calastone’s empire also extends to the $2.0 trillion-plus hedge fund sector, for example. Its ascent from a standing start five years ago has been remarkable.

Let there be light

Taylor has a generally positive attitude about the changes affecting the global funds industry, starting with the home front in the UK and the impact of the UK’s Retail Distribution Review reform programme. He is particularly positive about the RDR requirements for far more disclosure about charging and fees. For a business such as his, the regulatory changes are largely positive.

“As client transparency requirements gather momentum across financial products as a whole, each element of the total expense ratio of a fund will be subjected to growing and sustained scrutiny,” he said.

Such a shift would be a welcome move in fund management, given how even low TERs can erode returns when compounded over short periods, but the wealth management industry also needs to do more to be more transparent about fees and costs. (To view an article on this subject, click here.)

“The RDR has been a catalyst of change but many of the changes would have happened anyway, if at a slower pace,” said Taylor, adding that the internet and its associated technologies have driven significant change.

Expanding

Calastone is expanding, transforming itself from a UK and European service provider into a global one, as last March’s deal with RBC Dexia, among other developments, suggests.

“We began our concerted expansion into Asian markets at the end of 2011,” he said. “We are also targeting other markets,” he said, without elaborating at this stage.

Calastone started business providing order-routing services, but its offering has expanded, encompassing payments, settlements and reconciliation services. It has been in a partnership with Barclays to provide a managed settlement service where each firm’s net settlement across all of its trading counterparts are consolidated into one single market cash movement, which Barclays then handles through its corporate banking operations.  This approach is designed to minimise liquidity and counterparty risks for participants.

Calastone also enables clients to re-register funds from one platform provider to another, as stipulated under FSA rules.

There are 39 people working for the firm in London; there is also a team in Sydney and a first hire in Hong Kong.  To stress its commitment to the region, Calastone’s managing director for Luxembourg, Sebastien Chaker, will relocate to Southeast Asia by the end of the year and will be actively looking to make further hires across the region. Taylor added that five of Calastone’s existing staff speak Mandarin.   

Much of his work involves hiring and finding suitable people. “We have sometimes hired talent without specifying the exact job but we did so knowing that they would have the capability to help shape and develop a growing global business,” he said.

Asian promise

Asia’s fund industry presents a rich series of opportunities as much of the order processing in the region is still in the era of manual phone calls and faxes. This makes the existing system expensive, inflexible and potentially error-prone, he said.  

“What we do reduces the costs of processing an order...this is very scalable and makes clients insensitive to rapid volume growth,” he said.

Taylor’s background is in wholesale financial markets; among his previous roles was pushing for the use of electronic dealing in equity markets that had previously relied on dealer desk to dealer desk phone calls. From 1990 to 2003, he worked for Allianz Global Investors, Banc of America Securities and Insight Investment in senior IT and business roles. Earlier, he was a project manager at American Express and BT, with roles in Europe and the US. He has a strong “techie” background, holding a post-graduate diploma in Computing for Commerce and Industry from the Open University.

At Calastone, the firm has applied Taylor’s experience with wholesale-banking technology to the funds market as that had been “poorly served from an automated processing perspective”. Calastone already appears to be changing that bleak assessment.