He said part of the problem for custodians is the willingness, or unwillingness, of portfolio managers to adopt the custodian's technology platform.
"If your portfolio managers are working off their own applications but willing to use standardized (data) definitions, you can have a core service that the portfolio manager hooks into. But if each portfolio manager wants to use his own system and formats, that makes it much more difficult," Mr. Imhoff said.
In addition, he said custodians have become "vast message switches" to the world, shuffling their clients' information around. To boost the profitability of the low-margin custody business, many banks have offered other services such as brokerage, cash management and foreign exchange execution.
He and David Kushner, chief investment officer of the $12 billion San Francisco City & County Employees' Retirement System, said the important issue is how the custody operation is run.
Mr. Kushner said two years ago, the system searched for a new custodian and rehired Northern Trust, largely because of the firm's client service.
"If I need information for a report for my board and it's not a standard report, and I don't have the time to figure out how to get it and don't have the resources to do it, I make one phone call (to Northern Trust) and if my client service rep is not available, I have three other people I can call," he explained. "Typically I'll have that report on my desk in 20 minutes. Technology is what allows them to do that."
Patrick Curtin, executive vice president at Bank of New York, said much of the firm's technology expenditure in custody involves information delivery and providing the right kind of information in the right format for each client.
"Our clients are very different — insurance companies, broker-dealers, banks, central banks, pension funds and mutual funds. They all have different needs and the information they want differs," he said. "Being able to have information delivery tools that meet the needs of those clients is critical."
Mr. Abesamis at Callan called such customization of client information is high on the agenda at all custodians.
"That is the big push, that their technology investments allow full functionality," he said. "We call it ‘Google-me,' cut through the clutter by having a web application that is customer-centric. So if I am an accountant and I like data mining, I can do that, but if I'm a treasurer and I only want high-level information, I can get that, too."
Mr. Curtin said that overall, Bank of New York's spending on technology has increased 15% a year or more and is likely to continue to grow, though possibly not at that same rate.
"To be in financial services, technology spending is a huge component and that takes the form of hardware, software, systems development and people," he said. "A large portion of our work force — of any asset servicing work force — is either directly or indirectly involved in technology."
At Mellon, Mr. Beacham said the $45 million he spent this year on asset servicing application development will likely rise to the $55 million in 2005.
Just as custodians measure what they spend on technology differently, so do they gauge the return on their technology investments a little differently — though it's all about customer satisfaction and meeting customer needs.