IFDS is a 50/50 joint venture between State Street and DST. Famous for keeping a low profile due to the back-room nature of its work, it was described to me by one of its senior executive as “the best financial services company you’ve never heard of”.
IFDS was conceived in 1995 and has since grown to be the market leader in funds administration, processing two of every three investment funds traded in the UK. Most financial advisers and UK investors will have encountered IFDS, many without knowing it, because the company provides white-labelled administration and customer services to a significant proportion of the industry.
And here I have a confession: IFDS is a customer of mine. I do not normally write about my customers but I have made an exception simply because its take on innovation has lessons for most of us.
IFDS has built its success upon a culture of constant innovation. But what impresses me most is that having reached the summit of its chosen market, rather than pausing to admire the view, the IFDS leadership decided that the business process outsourcing skills and technologies they had developed so successfully for fund managers would be equally valuable to insurers and investment platforms.
Less than a year-and-a-half ago, IFDS launched two new businesses: Retirement & Insurance Solutions, headed by Steve Parkinson, and Platform Solutions, led by Matthew Brown. The Percana life and pensions system and the Bluedoor platform administration system are the core technologies of the two respective new businesses. Wrapped around these admin systems are proven technology, customer service, risk and compliance operations that have been the backbone of IFDS’s success to date.
And these bold moves have already been rewarded handsomely with the prize scalps of Skandia and St James’s Place. Both of these industry leaders have contracted IFDS to provide their platform technology and administration services for the next 20 years.
I recently spoke to IFDS executive chairman Simon Hudson-Lund about the simultaneous launch of two new businesses into two new markets. He said the idea for the diversification strategy can be traced to IFDS’s investment in Cofunds in 2003.
Hudson-Lund said: “The key driver was the fact that we could see our core business would reach a saturation point as we captured an increasing percentage of the funds administration market. To continue growing, we would need to branch out into new markets with new propositions. In fact, we could foresee a scenario where our core funds admin business could even start to enter a phase of natural decline due to the rise of platforms. Both of our parent organisations actively pursued growth strategies so we received all the support we needed to explore expansion.”
IFDS sold its 25 per cent stake in Cofunds to Legal & General last year but the experience made it realise that if the company was going to service this market effectively, it would need more than its funds administration platform, FAST.
Hudson-Lund said FAST was ideal for the back office of a funds supermarket but would struggle to accommodate the needs of a broader investment platform. He said: “When our parent, DST, acquired Bluedoor, we knew we had the full proposition we needed to service the wider platform market.”
Meanwhile, IFDS’s other parent company, State Street, was keen to explore the insurance sector and IFDS’s acquisition of the Percana retirement and insurance admin system gave it the core technology it needed for this market.
Hudson-Lund said: “More importantly, the need in both markets is strong. Both the life insurance and platform markets have reached a point where margins are being squeezed and every provider needs to increase efficiencies, reduce costs and deliver an improved customer experience.”
But conceiving the idea and obtaining the technology were only part of the job. IFDS then had to ensure it had the skills to deliver what it had promised.
Finally, it was important not to forget the core business. Hudson-Lund said: “We had to continue to keep our existing clients happy. Leveraging our network and client base is one of the keys to our success. Both Old Mutual and SJP are long-term clients of our core funds administration business.”
The drive to improve is ingrained in employees at all levels of the business. “Continuous improvement is arguably our most important value. Every one of our employees is actively encouraged to look for new ways of doing things, reducing inefficiencies and improving the experience for the end-customer.
Creating a culture in which innovation can thrive is the responsibility of every executive and manager,” said Hudson-Lund.
Simon Hudson-Lund’s top tips for innovation:
1. Innovate within your sphere of excellence. Carefully think through what your organisation is good at and stay close to this.
2. Build your strategy around these key skills.
3. Communicate effectively across the entire company, focusing on why you are doing what you are doing. Make sure everyone genuinely understands and believes in the new direction. We started communicating internally about our diversification strategy four to five years ago and month after month we talked about why it was the right thing to do and why it was going to be successful.
Campbell Macpherson is managing director of Campbell Macpherson & Associates