The quest to deliver quality service in global custody is intensifying, in tandem with the growth of customer demand for such service, the growing breadth and complexity of the global custody product and the custodian's role, and the increasing need for providers to differentiate themselves from the opposition.
The process of choosing a custodian in the first instance is gruelling. Clients want to get it right first time, and few would care to repeat the process unnecessarily. How then can the performance of a global custodian be measured? One can readily identify at least three main ways: absolute measurement against statistics, relative performance in independent surveys, and vigorous self assessment.
There are several major independent surveys. In no particular order, these include the statistically based global custody survey carried out by Global Custodian magazine, and the more 'qualitative' surveys carried out by Global Investor magazine and by R&M Consultants.
A further report by International Custody and Fund Administration (ICFA) magazine is aimed at measuring the quality of client relationship management. In addition, GSCS Benchmarks has supplied the cross-border investment industry with independent benchmark figures measuring the efficiency of more than 50 major and emerging markets since 1992. "The benchmarks rate efficiency in terms of settlement, safekeeping and overall operational risk and are produced using a number of factors," says James Lee-Tullis, editor of GSCS Benchmarks. The core data is supplied by a roster of ten participant banks, including leading global custodians.
Looking ahead, London-based consulting firm Thomas Murray is thought to be examining the possibility of constructing a third party custodian rating service, formalising its existing practices in custodian risk assessment and other areas.
What do the major market players think of existing attempts to measure their worth? First of all, the lack of a truly definitive and truly global ranking system is lamented. Secondly, different surveys and researchers view the product from different perspectives, and the needs of the one do not necessarily mirror the needs of the other. Comparing surveys is seen as a classic example of comparing apples with oranges.
Global Custodian, being US-based, has a distinct US bias. Global Investor focuses solely on investment managers, and is criticised for not separating niche providers from the larger mega-custodians. The R&M Survey, which focuses on pension funds, is regarded as more UK- and Euro-centric. The rawness of the data provided by GSCS Benchmarks is seen by some in the market as a strength, but is highlighted elsewhere as a weakness. ICFA states clearly that its aim is not to rank custodians, but to provide a general guide to the level of satisfaction within the industry.
Custodians themselves argue that there is no finer measurement of their performance than the rigorous and continuous self assessment to which they subject themselves. In other words, the best surveys are the ones done in house.
A combination of an internal quality performance programme, precisely worded service level agreements and careful attention to the relationship management process, should ensure that life is, and remains, beautiful. It is more important for individual custodians to keep on top of their game, rather than wait for outsiders to measure their performance.
"If someone else knows what your customers want better than you do, something has gone wrong," comments David Dunlop, chief executive officer of Toronto-based Royal Trust. Royal Trust, a niche provider that came out on top in this year's R&M survey, prides itself on being among the first, if not the first, to adopt a formal internal programme to ensure it keeps up with or ahead of client expectations. Its QUEST quality management programme (Quality and Excellence through Standards) has been running since 1987.
"QUEST serves to monitor and manage service delivery, and now operates throughout our Global Securities Services division," says David Dunlop. Strictly adhered to, the programme tracks and measures performance against more than 225 quanitfiable client-defined service standards. "Operational performance is regularly compared to GSCS Benchmarks, by market, and any deviations from targets are carefully analysed and action plans developed where necessary. I can tell every month where we are running ahead of the market and where behind."
"We use the major surveys to confirm what we already know," adds Sean Quinn, Global Custody Product Manager at Citibank Worldwide Securities Services. "But we also survey our own clients, using our own questionaire; the feedback has helped shape our approach in improving end-to-end service to clients."
"The first step in measuring custodian performance is to agree who is to do what for whom," says Lucille Knapp, of Northern Trust's European new business development division. "Our service level description lists everything about a relationship, enabling clients to assess for themselves whether or not we as custodians are doing the job we have promised to."
Do clients pay any attention to all the measuring and surveying being done on their behalf? Not if Martin Jack, in charge of IBM Retirement Funds (Europe, Middle East & Africa) is typical. "We don't put a lot of weight on surveys," he says. "They might prompt questions, but no current surveys have played a part in any recent custody appointments here. We have developed our own way of assessing custodian performance."
Even if they aren't crucial in winning business - and a faint suspicion does exist that there is an element of 'all must have prizes' about this burgeoning industry sub-sector - there is it seems a direct link between league table rankings and business success. "There's a strong correlation between consistently poor performance and your very survival," comments David Dunlop. "Many who have finished in the bottom three or four in the past are no longer in the business today."
The final word goes to Jeremy Jewitt, business executive for Global Investor Services, Europe, Africa and the Middle East, at Chase Manhattan. "Benchmarking for the industry is very difficult. We use an outside research firm to survey our client base, but the best way to measure long-term success is by examining the growth of the client base over time. How long have your top clients stayed with you, and do they put increasing amounts of business your way, and how many new clients do you win in target markets each year?"
A version of this article appeared in the Financial Times Global Custody Review survey in July 1999
Brian Bollen
Freelance Writer, Editor & Media Consultant
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