"I hope you don't get me wrong. The few statements that I'll make here are only to stimulate discussion and not to offend." With that, Marinus Maaskant, chief executive officer of ABN Amro Mellon, launched into the sensitive topic of consultant services at a custody conference held in Hong Kong this week.
"Living in an ideal world a consultant [to clients on custodial services] can investigate about six global custodians. If you put the information they gather from their investigations on the 'net, no potential client would need a consultant anymore. I think given all the RFPs [request for proposals] that we get, about 95% of the questions are similar questions [to other consultants]. And sometimes I wonder whether the process we go through is a phony process or a real one."
Maaskant is talking about the selection process that consultants go through when they investigate which global custodian to use on behalf of clients. As a part of the selection process, consultants send out RFPs for custodian banks to fill in; they then evaluate the custodians based on the information provided and make recommendations to clients accordingly.
From his experience, Maaskant says most questions posed in RFPs are generic and he has yet to come across any that could yield answers that may prove useful to a client's specific needs.
"The possibility and the ability [of most RFPs] to create customized information for their clients which allow them to have a true evaluation of our service is very low, particularly in the area of measuring the potential of a global custodian being able to keep delivering quality services over the next three to five years. And if those questions are covered, then the answers that we give to those questions are likely to be very difficult to evaluate because they are qualitative by nature," Maaskant adds.
While being able to extract information on a custodian's past performance, Maaskant argues RFPs cannot forecast how the same custodian would perform in the next few years. "Maybe global custodians should refuse to fill in RFPs for clients that they don't want to have. But consultants dare not do that at the moment because if they do then the consultants may not send them another RFP because you have insulted them."
On clients' attitudes towards using custody services, Maaskant suggests clients should begin to realize that they cannot expect "everything for nothing".
"The investment on automation made by some custodians is to the tune of $250 million a year - so you can't expect global custodians to provide services for nothing. And it means that rock bottom in terms of fees discussion has been reached," he adds.
Instead of focusing on selecting a custodian, Maaskant suggests it may be time to start to focus on how to improve, and how to evaluate, the relationship between the clients and custodians in terms of reaching a quantitative service level agreement.