One major result of RDR and FATCA has been a slow but rising tide of concern among wealth managers with managing their data, in part owing to data handling complications caused by market consolidation and merger activity. Client relationship management and other portfolio systems are creaking with issues around data quality and having data spread across multiple jurisdictions and applications. There are system scalability issues associated with bringing clients across from acquired independent financial advisors or wealth managers onto the acquirer’s platform, and also problems associated with integrating a multiplicity of systems. The pressure on data management will be intensified if FATCA-type legislation is replicated by other jurisdictions, as is widely anticipated. The question is, will tier two and tier three wealth managers recognise that data management will be a major problem and do anything about it before they are overwhelmed?

In a bear market, any technology-sell to wealth management firms is a tough one. Given that in the short term, an enterprise data management system is going to push a wealth manager’s costs up, that sell becomes even harder. There are new governance issues, new systems to install and new people to hire or train. While cost is therefore a challenge initially, there are important strategic reasons why wealth managers must seize the benefits stemming from this new approach to data management.

Mergers and multiple sets of data

Among financial advisors and small wealth managers in particular, RDR and market conditions will inevitably lead to consolidation. This consolidation will result in more complexity in the management and consolidation of information across the firm. For example, when merging with another wealth manager, the two sets of client data must be rapidly consolidated in order to have a view of exposures across both companies. If this is being attempted across ageing and disparate back office systems, the task becomes even more difficult. One solution is to implement a data layer that both firms’ systems can feed into. In this way the data consolidation process takes place outside the two back offices – reducing operational risk and increasing management, sales and marketing information flows.

As more firms embrace the use and monitoring of social media, this data gathering and distribution becomes even more complex. Some firms are already implementing solutions that monitor social media use among clients and prospects, then record and route that information throughout the organisation. In the new world, the emphasis is shifting from research and modelling customer habits based on historical information to analysing and reacting to customer behaviour in real-time.

The use of social media by fund managers and marketing professionals can also create headaches within the compliance world.

These issues can only really be addressed through the deployment of technology, in alignment with changes to operational procedures.

The impact of data governance

Data policies and governance have had an impact on every other area of the investment management community and they will inevitably reach wealth managers. To meet the intensifying scrutiny of regulators, advisors and customers, wealth managers must know where the master files are and where data can be amended. In other words, every piece of critical data has a governance process surrounding it. For example, if data can be amended at the distribution point, wealth managers must ensure that the data is also amended at the source.

A better “client knowledge portal”

The Financial Services Authority, the UK regulator, has recently written to wealth management firms in the UK, expressing disappointment about their lack of processes and controls when selecting products. The "Dear CEO" letters urged wealth managers to offer the right advice and the right products to clients - but without consolidated client data, offering the optimum advice is difficult to achieve. Critical client data must be made readily and easily available to all interested parties. This data must also be timely and accurate.

Data mobility and interactive data channels

As distribution channels switch to more mobile solutions, wealth managers must be capable of populating and interacting with mobile devices, especially when distributing through third parties. This means manipulating data to produce it in multiple formats and then receiving that data back again. That information ideally should be held in a data management layer.

Mobility is quickly evolving and the days of making a pdf document available to read on these devices have gone. Today, information must be formatted and designed to interact with consumers through a range of end points. Firms must be smart and provide data in the appropriate formats. Some information will be better suited to traditional reporting formats, whilst other elements will need to be designed and rolled out through more interactive channels – such as tablets and smartphones.

The pressure of volatile markets on data infrastructures

In volatile markets, the need to “stress test” key events (such as a country leaving the euro) becomes critical. This requires decision support tools and a sophisticated investment support infrastructure for your client base. The ability to "slice and dice" data, and deliver real-time positions information with the nimbleness that the market now requires all exert additional pressure on the data management function. Most wealth management back-office systems are still concerned with keeping an accurate cash record and transactions processing: volatile markets demand a new level of data management sophistication and agility.

Conclusion

The efficient management of investment data throughout a firm should be at the forefront of strategic thinking across the wealth management industry. Technical solutions need to be state-of-the-art but, more importantly, the governance of processes and procedures to manage this data is paramount to ensure production-line efficiency and minimise the cost of errors and reduce the risk of regulatory breaches.

Wealth management is the only segment of the investment market where there is no intensity around data governance. Wealth managers are dealing with data issues but they are dealing with these within the realms of other disciplines, such as client reporting. Other segments like asset management see data as a separate, standalone entity that requires its own budget and strategy. Wealth managers must also take this perspective or lose a vital competitive edge.