Invesco is in final stages of transitioning its processing business from HSBC to Bank Consortium Trust, a move that could presage long-anticipated consolidation in the Mandatory Provident Funds servicing industry. The change is the culmination of longstanding concerns from Invesco about having a rival such as HSBC handling administration for its MPF business.
The review began when HSBC acquired Bank of Bermuda in 2004, a fund administrator that had serviced many asset managers' accounts. But Kerry Ching, Hong Kong CEO at Invesco, says the decision ended up being about getting better service and a better technology platform.
"We wondered what kind of functionality we could get and whether HSBC's platform would reach the level we required," she says. For example, Invesco was not satisfied with HSBC's ability to handle voluntary contributions beyond the regular, monthly contribution cycle, without manual inputs.
But other systems on the market could handle irregular contributions. "Employers won't promote voluntary contributions if it means more paperwork for human resources," Ching notes.
Another problem was switching between funds. More MPF members are rebalancing portfolios, which requires entire portfolios to be liquidated, which can trigger ineligibilities in guaranteed funds with certain conditions. The BCT platform allows Invesco to move pieces of portfolios rather than have to cash out entirely.
The win is a huge boost for Bank Consortium's aspirations as a third-party processor. It already does work for two other MPF providers, China Life and Taiping Life, but their businesses are tiny.
BCT's CEO, Lau Kashi, says the group's selling points include its independence - the organization has no custody, fund management, banking or insurance business, it is purely a master trust for MPF, the only purely local, independent player in the business. "We do fund administration here in Hong Kong, not in some other place like Ireland or Luxembourg," she says.
The decision to leave HSBC was convoluted, and Invesco spent several months negotiating with it and BCT to determine whether the major hassles of switching administrators was worthwhile. But it now intends to go live on BCT as of April, by which point it will have explained the changes to members and switched electronic payroll ties between clients and HSBC to the new platform.
Consolidation of administration has been a hot topic in the MPF industry since it launched five years ago. Players agree that there are too many master trusts either doing their own processing, or seeking to make a third-party business out of it.
Invesco will be the second to make a change, after Principal acquired the Dao Heng MPF business in 2004 - but that was an outright acquisition, while this is the first time in MPF that a provider has changed its third-party trustee and administrator.
"If this transition is managed well and our clients are OK, then those providers on the sidelines will review their pricing," Ching says. "This could create fee pressure."
HSBC Trustee officials said the move should not be read as a trend, but simply a one-off. Invesco gave the business to BCT after a thorough search, which included CommServe (now SunLife Financial) and Principal. Ching says it was a narrow decision but the others were either too oriented toward insurance business, or did not do both trustee and admin. As for the fees Invesco negotiated, Ching says, "There will be savings to our members. Everyone is looking forward to seeing our new prospectus in April."