Global custodians net big gains in client satisfaction survey

Custodians around the world are doing something right.

The overall score in R&M Consultants' 2004 client satisfaction survey of global custody rose to a record 5.56 from 5.32 in 2003. See table of top-ranked custodians

"That is an all-time high," said Richard Hogsflesh, managing director of London-based R&M Consultants and chief surveyor. "I think it is partly reflective of the fact that the whole process of custody is much more automated these days and that's helped reduce error rates," making clients happier.

The 2004 increase follows gains of 0.13 of a point last year and 0.37 of a point in 2002.

Mr. Hogsflesh added that rising global equity markets most likely contributed to a better mood among custody clients, noting the last decline in the overall score was in 2001, after the severe decline in stock markets around the world in 2000.

Still, "the general sense from everybody across the board is that custody service levels have improved," he said.

What's even better for pension fund custodians, is that they scored even higher.

"Generally speaking, pension fund respondents tend to be more generous with their responses," Mr. Hogsflesh said. "It could be because they don't usually have as wide a perspective as others. They typically don't deal with more than one custodian."

He said satisfaction among pension funds was across the board — from U.S.-based pension funds, U.K.-based pension funds and other non-U.S. and non-U.K. pension funds.

In the pension fund category, Toronto's RBC Global Services ranked first, with a rating of 6.38, the highest overall rating and not far from a perfect 7.0. RBC did not place last year, because not enough of its clients responded to the survey.

RBC was followed by: Pictet Group, Paris; Mellon Group, Pittsburgh; BNP Paribas Group, Paris; UBS, Zurich; HSBC Holdings PLC, London; Northern Trust Co., Chicago; State Street Corp., Boston; and Bank of New York, New York.

Tied for 10th place were Credit Suisse Asset Management, New York, and J.P. Morgan Investor Services, New York. Citibank, New York, which placed fifth last year, slipped to 12th place. Mr. Hogsflesh said the decline was more due to the firm's failing to keep up with improvements in the industry rather than major disatisfaction from clients.

The survey, in its 12th year, calculated results from 1,350 institutions that use custodians, including pension funds, foundations, endowments, investment managers and banks. Respondents answered 35 questions, up from 25 last year, with ratings from one to seven.

Mr. Hogsflesh said the survey was redesigned this year to reflect the increased automation of the custody business, with more focus on services that cannot be automated, such as how inquiries are handled, corporate actions and proxy-voting issues.

In addition, a question about the custodian's Internet capabilities was reintroduced this year to cover what Mr. Hogsflesh said is an essential part of how a custodian provides information to its clients.

"All of this was intended to test the custodians further, and they have passed with flying colors," he said.

Overall, the top 10 custodians were: Societe Generale Group, Paris; RBC Global Services; Pictet Group; BNP Paribas Group; Brown Brothers Harriman, New York; UBS; Mellon Group; Northern Trust; HSBC; and Bank of New York.

Among those, BNP Paribas had the biggest improvement from last year, rising from 13th place. Pictet was last year's No. 1, while Societe Generale came in second last year. At No. 5, Brown Brothers was the highest-ranked U.S.-based custodian, replacing Mellon, which held that same position last year.

For all clients with more than $10 billion in assets, Brown Brothers ranked No. 1 as custodian, followed by Mellon, State Street and Northern Trust, according to the survey. Bank of New York and J.P. Morgan were tied for fifth place.

Among individual custodians, Mr. Hogsflesh said State Street's performance was notable because the company had incorporated the custody business of Deutsche Bank, which it acquired last year.

"Normally, such a transition registers deep discontent on the client radar screen," he said. But 31% of the respondents said service at State Street improved, 58% said it stayed the same and 11% said it declined. Mr. Hogsflesh said the survey found that pension funds were particularly pleased with State Street.

Most of the respondents, 41%, were from the United Kingdom, while 31% were from North America, 25% from Europe excluding the U.K. and 3% from the rest of the world.