Automation Is Key To Unlocking Asset Managers’ Competitive Edge

Paul Watthey Advent Software Director of Marketing Advent Software EMEA 26 August 2009

Automation Is Key To Unlocking Asset Managers’ Competitive Edge

They were once the preserve of bulge-bracket investment banks and asset management behemoths, but sophisticated front-to-back technology platforms are now within reach of all investment management houses, regardless of size, structure and clientele.

They were once the preserve of bulge-bracket investment banks and asset management behemoths, but sophisticated front-to-back technology platforms are now within reach of all investment management houses, regardless of size, structure and clientele.

Indeed, for small independent asset managers – of which there are an estimated 3,000 in Switzerland – such technology capabilities have become not only best practice, but a prospective source of competitive advantage, as firms seek to meet the sophisticated investment mandates and tax planning requirements of their clients, maintain exceptional service standards and do so in a tougher cost environment.

The importance of integration

The benefits are legion. Introducing automation, to reduce the cost and risk of errors that come from relying on manual processes, is one obvious area where improvements can be made.

But leveraging systems to automate important functions only creates islands of efficiency improvements. Rather, automation must be accompanied by seamless integration between the different phases of the transaction processing chain, from portfolio modelling through trade order management, portfolio management, accounting, performance analytics, reporting and client relationship management.

For instance, a crucial part of an asset manager’s operational backbone is its general ledger system. But the absence of a seamless link between a firm’s portfolio management and general ledger platforms means trade data has to be keyed in manually. The potential for erroneous entries is enormous, with all the downstream accounting problems that produces, not to mention the laborious human effort involved.

And similar inefficiencies and risks arise wherever manual intervention in the processing chain occurs – in investor accounting and servicing, position reconciliation with managers and custodian banks, performance measurement, or management and client reporting.

Controlling operational costs then, not least in the current economic climate, is one attraction of moving towards a straight-through processing environment. Likewise, minimising exposure to operational risk – where losses may arise from employee mistakes, malicious or criminal activity, systems failures or natural disasters – is a key area where stable, robust and functionally-rich automated systems will help.

Regulatory pressures

Compliance monitoring too is becoming an evermore prominent theme throughout the global financial services industry, and it is a trend that only looks set to continue. According to a study released in October 2008 by research firm NOVEO Conseil for BNP Paribas Private Banking, 80 per cent of independent asset managers in Switzerland expect regulatory pressures to increase, and 81 per cent anticipate regulatory pressure will act as a brake on market growth.

Faced with this constant regulatory evolution across multiple jurisdictions, plus a panoply of client requirements and internal investment policies and restrictions, fulfilling your firm’s compliance duties therefore will become an increasingly complex task.

And the price to pay for compliance breaches comes not only in the shape of fines or penalties from supervisory bodies, but in the less tangible, but potentially costlier and longer-lasting, form of reputation risk. Here, the whiff of unwitting or intentional lack of control and mismanagement can lead to an exodus of existing clients and impact an asset manager’s ability to attract new assets.

But here again the implementation of robust operational processes that comes from having automated trading compliance and portfolio monitoring capabilities will enable firms to better control their compliance environment, and thereby help safeguard themselves against the threat of reputation risk.

But while automation has an invaluable role to play in enabling firms to control costs and downside risks, there are numerous positive effects to be had too.

Multifarious benefits

Crucially, client reporting and servicing become much easier and are executed to higher standards when the processes are automated.

Having an integrated systems environment provides users with the ability to capture and collate portfolio data and feed it into reporting engines that generate information-rich reports customisable to the preferences of individual clients. What is more, because the process is automated the reports can be sent much sooner after each period end.

And incorporating a client relationship management system within this environment will enable the asset manager to track and personalise its communications with customers, making it more responsive to and proactive in meeting their requirements.

Meanwhile, having the ability to quickly and accurately generate management reports that give an aggregated view of client holdings and positions means staffers can monitor asset class and currency exposure, calculate and analyse performance, and make better informed asset allocation decisions – no small benefit in light of the challenging market conditions we are experiencing.

In addition, having effective compliance checks and controls that are systematised, testable and provable will ensure organisations keep on the right side of regulators, and can help enhance the firm’s reputation with its clients and in the wider industry.

In short, leveraging an end-to-end, cutting-edge technology infrastructure provides small asset managers with the opportunity to reduce their operating costs and risks, and free up their employees to focus on more value-added functions such as asset allocation and manager research, ideas generation, customer liaison, and sales and marketing. And therein lies the key to your competitive advantage and future success.

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