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How and why BNY Mellon putsits customers first

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GM Cover Issue 82.qxp_. 22/06/2015 12:52 Page FC1

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TECHNOLOGY AS A business fa-cilitator is now front and centre ofthe investment services story. In

part it involves bolstering the analytics

available to clients; and in part it involvesboth efficiencies in process and standard-isation – and therefore predictability andtransparency – in transactions and oper-

ations. However, it also changes the waythat financial services providers nowinteract with their clients and helps in-vestment services providers redefine theiroverall service offering.It is a mantra that has resonance, says

Pearce: “Bearing in mind that our focus ison serving our clients, being a technologyleader in our space, being the best qualityservice provider, and being most alignedwith our clients’ objectives among ourpeers. Technology leadership is a veryimportant consideration for us and weare going through a process now of struc-turing ourselves for long term success.”How each player in the investment

services space responds to the march ofprogress could fill an encyclopaedia; butultimately it depends on the firm’sstrategy as well as legacy business andtechnology considerations. Regardless,the demands of the new world economicorder are propelling market players tonew alliances and acquisitions to absorbinnovations and adapt to change evermore swiftly. Explains Pearce: “If you lookat our story, BNY Mellon is the productof more M&A activity than I can evenremember. My first exposure to BNYMellon was when they acquired theglobal custody business and the mastercustody business from JP Morgan in 1996.Since then, there have been some 100pieces of M&A activity of varying size, soover the years we became a complicated,in some parts disparate, organisation,albeit one with a very sophisticated andclient focused capability.”Rationalising that complexity is now

very much the company’s goal. “While wehave not completed the task of turningthat into a slick, single homogenised ca-pability, doing so is our primary focus atthe moment: through a process of con-tinuous business improvement, we areembedding strong discipline into thebusiness: doing it once, doing it right –and doing it for scale.”Once those new foundation stones are

firmly in place, the company will be posi-tioned to push even harder on where it canreally add value to the customer. As Pearceexplains: “For a productive conversation,you need to be bringing fresh insights,

There’s a new paradigm in investor services. FTSE Global Marketsspoke to Daron Pearce, Global Head, Investment Managers segmentfor Asset Servicing at BNY Mellon, about the evolution of theinvestment services business set and what it means, long term, forthe bank’s clients. Backed by innovations in technology the companynow mines a rich seam in ground-breaking client services based onsophisticated analytics that help its clients better understand theworld in which they operate, and allows BNY Mellon to developnew tools and models that leverage their expertise to better servicetheir own customers.

New age investmentservices: Transforming theclient’s business spectrum

M AY / J U N E 2 0 1 5 • F T S E G LOBAL MARKET S

COVER STORY

NEW APPROACHES TO CLIENT SERVICES

Photograph of Daron Pearce, Global Head, Investment Managers segment for Asset Servicing at BNY Mellon. Photograph kindly supplied by BNY Mellon June 2015.

FRONT_82.qxp_. 08/09/2015 11:00 Page 4

value, and access to new markets, alongside new technology that clients can use to better support their own end-client. It turns on one simple question: what more can we do together?”When added value is the game, a high-

touch service model must be a given. BNYMellon has a very sophisticated coveragemodel, says Pearce: “If you look at our top100 clients, our Executive Committeemembers are each dedicated to workingwith one or two of the very largest clientswith a view to ensuring that the conver-sation really is around value, thatuntapped opportunities for those clientsare being fully explored, and that we areraising the bar in respect of our competi-tors around the more standardisedservices that we offer our clients”.While he acknowledges that standard-

isation is an important business pillar,Pearce is firm that it does not merelymean reducing services down to acommon denominator: “Far from it. Itactually allows firms to build flexibilityinto the service engines. Once you createthat common architecture, it frees upcapital to invest in the next big thing: in-novation, digitisation, new markets, newasset classes and new ways of doingbusiness. All of that can be properlyleveraged once your infrastructure is builtfor purpose and scale,” he explains.

Growth and big dataIt is a given in these post-post recession-ary times that shifts in the investmentlandscape are dramatic and invariablyhave an international, if not globaldimension. The investment world isperforce more complex and fluid; it is in-creasingly fragmented to suit a multi-asset, multi-national universe. In thatsense, you can see the logic of assetmanagers wanting consistency, pre-dictability (where possible) and the rightkind of analytics that give them comfortin making decisions.Today, conversations with clients are

highly charged around issues such asbusiness efficiency, growth, investment per-formance and distribution, says Pearce.Growth is a constant theme and now thereis a big data story attached to that, he adds:

“Managers are waking up to the fact thatif they use the data that is inherent withintheir investment portfolios or in client port-folios in the right way, they will generatefresh insights that they don’t get today. Thatpresents us with the opportunity to beunique in how we help those managers.Whether it is an investment book of record,or a distribution book of record, or an ac-counting book or whether it is the custodyview, there are many different ways ofviewing the portfolios and mining that datato bring fresh insights.”Institutions can leverage big data to

store large volumes of historical marketdata to feed trading, predictive modelsand forecasts, and perform analytics oncomplex securities, using reference data,market and transaction analysis frommultiple sources. Essentially BNY Melloncan now provide previously untapped in-formation to a manager to give insightsaround who is buying their product andthe type of investor that they arecapturing. It is “transformative,” saysPearce: “It is invaluable to the client interms of where they target their firepowerin terms of determining which demo-graphics they do reach and where theyare not hitting their marks. But you haveto have the right platform and capability,structure and technology to do the rightkind of mining.”As the market has turned from a post

recessionary period into a time ofincreased market regulation and scrutiny,doing business has become a moreacutely balanced trade-off between riskand reward, says Pearce, and BNY Mellonhas already come to terms with the harddecisions it needs to make.

The byword now is focus, with thecompany leveraging existing strengthswhile scaling back or even exiting (as wasthe case with transition management)those activities where the potential forprofitable growth is limited. Pearce ispragmatic about the lessons taught by thefinancial crash: “I am proud of the waywe responded to the challenge. As a G-SIFI, we came under massive scrutiny ata testing time when we suffered areduction in our earnings. The companyreacted well and utilised its capitalstrength and power base to buy busi-nesses that have added to the institution’sservice depth.”Among the key acquisitions the bank

made were PNC’s investor services business,Insight Investment Management – “thefastest growing LDI manager on the planet,”says Pearce – “and hedge fund administra-tion and analytics specialist HedgeMark.“All in all, I’d venture we managed the crisisincredibly well and came out of it strongerthan anyone,” he says.

Aligning with winnersThere’s a logical strategic imperative

behind the tactics. “We want to be topthree in everything we do, and where weare not, we have a plan to get there – andif we can’t see a plan to take us there,then there is a strong likelihood that wewill exit. We have to do that not becauseof vanity, but because we won’t get thereturn on capital we need in the currentregulatory environment to make it worth-while,” expands Pearce.Technology is fundamental to support-

ing and driving BNY Mellon’s growthplans; there is a renewed commitment toinvesting and focus in the right spaces.Pearce believes that the connectivity inthe business and model insights, “givesus the edge in thinking about how weleverage the data insights that the modelgives us – and we are winning the race inbringing that to market. We help ourclients solve their problems, rather thanfocusing on selling them a particularservice or product.”As Pearce describes it, there is

“something of an arms race” in effect. “Ifyou are not in a position to help your clients

3FTSE G LOBAL MARKET S • M AY / J U N E 2 0 1 5

What particularly engages Pearce is tomorrow’s world and

technological innovation, whetherthat be the impact of ultra-low

latency data transfer and data ma-nipulation or the impact of block

chain technology.

FRONT_82.qxp_. 08/09/2015 11:00 Page 5

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meet their regulatory burden, or to meetthe regulatory burdens that are now placedon you as a service provider and to keepinvesting in infrastructure, then maybe youare not fit for the long term in this business.For example, UCITS V is coming up – canyou be first to market with a compliantsolution? If you can’t deliver quickly andeffectively, you need to seriously questionyour commitment to the business. That isjust simple economics.”This pragmatism has helped the bank

define with precision which marketsegments it aligns with; the reality is thattoday it is focusing on the largest assetgatherers and institutional investors. “Wehave the largest asset pool as a custodianin the world, $28.5trn,” acknowledgesPearce, “The reality is that the very biggestasset gatherers are getting bigger and thesmallest are doing well, but there is asqueezed middle. The large assetgatherers can easily do multi-product andmulti-region, while and at the other endof the spectrum the boutiques are spe-cialised and focused. However the firmsin the middle do not have the scale thatis required and are susceptible to havingthe larger players pick off anything thatprovides long term benefit.”In today’s world then you have to

have big revenue streams to deliver new product development and innovation. The question then for BNY Mellon is how it responds to the rest of the market. “Aligning with the long term winners is obviously a good strategy and we have pivoted our client services coverage model accordingly, though that’s not to say we won’t service the smaller outfits, as long as it is profitable business,” is Pearce’s succinct analysis of the bank’s sales focus.Pearce recognises that his business

cannot stand still. Competition and height-ened regulatory requirements continue tochange the mix of providers with utilities,such as Clearstream, the DTCC andEuroclear, which have the financial heft,global strategic relationships and access tocollateral assets, now beginning to make aplay in the traditional custodian space,assisted by regulations such as Target2Se-curities (T2S) in Europe.“There will be more competition

between investment services companiesand utilities.It is a feature that Pearce says he does

not find frightening, for two reasons.“One, we are already part of theEuroclear/DTCC infrastructure, in factprobably one of their biggest clients, andover time they are moving into a spacewhere they are more a competitor ofours. Now I would back us every time,given our depth of capability, people andinvestment spend. But competition isgood, it is a natural feature of our newworld and it should encourage us to con-stantly review what we are doing andwhy,” he avers.Secondly, he highlights the fact that BNY

Mellon is a self-sustaining universe of sorts.“We have our own diversified businesslines and a huge investment business (weare the world’s fifth largest asset manage-ment firm) encompassing 12 differentboutiques. It seems unlikely that we cannotdelve into our group and pick out expertisethat can provide solutions for our clients.And should a client want a certain invest-ment profile that includes a country capa-bility or asset class that falls outside ourremit, we would be happy to partner withsomeone who has that specific capability.We might have 90% of a solution; anotherfirm might have 10% - ultimately, whetheryou are a service provider, asset manageror broker-dealer, the key is to focus onbeing the best at what you are good at andtap into others to be really strong in thethings you’re not. That is the way forward.”

The futureWhat particularly engages Pearce is tomorrow’s world and technological in-novation, whether that be the impact of ultra-low latency data transfer and data manipulation or the impact of block chain technology. “That is something I am really excited about,” he says. “I think it will be one of the biggest game-changers since the advent of the personal computer. We are a holder of assets for other people, so if the block chain makes that unnecessary, then that means our business will be forced to change. It is not bitcoin itself that is the issue– it is the concept of not having to maintain a separate record that

may make the need for certain types ofrecords redundant. We have woken up toits potential and we are beginning toharness some ideas around it, thoughclearly it is in its infancy right now.”Another spur is what the future of

‘robo-advisors’ might mean for the in-vestment services business over the longterm. “The provision of electronicallytailored advice on pre-determined infor-mation fed into a website, is already beingharnessed by the wealth industry,” addsPearce. “We are certainly looking at whatadditional automation might mean forour wider business. It is a case of watchthis space.”Looking to the future, Pearce returns

to the theme of building “veracity around repeatability” in the business, and the dynamic that transforms a one-off solution for one large client into a solution for the market at large. This model is central to the company’s strategy and is borne out by the arrangements BNY Mellon has forged with Deutsche Asset & Wealth Management and most recently with T. Rowe Price. “We're aligning with world-class anchor clients to make big strategic platform investments in what we perceive to be markets with strong growth dynamics,” he says. “Those strategic platforms will create shared economies of scale which benefit our clients and our shareholders in the long term, and we are confident that the long-term returns and growth opportunities they represent are important investments in the future of our business.” n

M AY / J U N E 2 0 1 5 • F T S E G LOBAL MARKET S

COVER STORY

NEW APPROACHES TO CLIENT SERVICES

“While we have not completedthe task of turning that

into a slick, single homogenisedcapability, doing so is our primaryfocus at the moment: through aprocess of continuous business

improvement, we are embedding strong discipline intothe business: doing it once, doing it right – and doing it

for scale,” says Pearce

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