February 18, 2020 | Pat Green, Client Experience
The following article was originally published in the February 20, 2020 edition of WealthManagement.
Increasing margin compression and the drive toward creating a digital client and advisor experience have pushed asset and wealth management firms toward a new target operating model that promotes a predictable and scalable cost structure, and emphasizes the impact of timely and accurate digital information. The model typically requires expanded enterprise data management capabilities, and the buildout of a more robust vendor management program to coordinate activities with newly engaged outsource services providers and data vendors.
Like many of the operations heads with whom I work, I’ve run internal middle office teams, and managed outsourced operations. I’ve also consulted with asset managers of various sizes, designing and executing on target operating models. I’ve seen some great successes over the years, and a good number of missteps.
Flex the Team
When all business partners including outsourced service providers are squarely on the team, mutual access to information and insights spurs better idea sharing and more effective problem solving. And the financial aspects of the relationship are important as well...when financial reward systems are aligned, parties benefit from each other’s success.
The engagement of all parties is key, and a fully transparent and accessible workflow with well-documented audit trails facilitates the process of maintaining control, exercising oversight, and interceding seamlessly when appropriate.
What I’ve seen in my consulting practice with the industry is a redeployment of internal operations experts from their legacy operating roles to new data governance and vendor management roles.
Data stewards, generally housed within a new data governance organization (DGO), network with data ‘owners’ throughout the organization; utilize enterprise data management systems to ensure that datasets are complete, correct and secure; and directly access data decision makers throughout the firm. The output of the organization’s work is function-specific ‘gold copy’ data which is applied across the organization’s applications and reporting.
With the right enterprise data management system and transparency tools, data stewards also participate in and audit the operations activities of vendors and remote team members.
Participation in the oversight and audit of vendor and remote team member activities is another opportunity for redeployment of existing staff. These team members provide an escalation point for vendors and remote service provider teams, and intervene when appropriate.
Together, these teams:
- Maintain the integrity of the firm’s proprietary and market data
- Establish and monitor relationships with data vendors
- Monitor the distribution and application of the firm’s gold copy data
- Establish procedural interfaces with new distributors and service providers
- Monitor the new account process, ensuring that portfolios are established, funded, and traded within established timeframes
- Audit security master maintenance, corporate actions processing and custodian reconciliations
- Represent investor interests during the process of meeting cash requests
- Examine investment performance results for outliers, composite membership and reasonability of return
- Respond to regulatory requirements related to vendor management
Because the content expertise needed for these activities is familiar to the existing team, individuals’ transition to data governance and vendor management roles can be seamless.
Regulators have made it clear that while an asset management firm may outsource certain operational functions, oversight and accountability remains a firm responsibility. Data and vendor management responsibilities elevate the internal team, fully engaging these deeply knowledgeable associates.
Transitioning to a new, target operating model can be less stressful than generally thought. Insisting that service providers adhere to your Operations Bill of Rights, while showing loyalty to your existing team, can accelerate your success.
Pat Green joined Archer from Accenture where he was Associate Director of their Asset & Wealth Management Technology practice. His extensive experience in the investment management industry includes previous positions as Chief Administrative Officer/Managing Director of Legg Mason Investment Counsel & Trust, and Senior Practice Lead for InvestTech Systems. Pat brings deep knowledge of investment management systems and operations across the front, middle and back offices. He has successfully ushered firms through designing and implementing new operating models, conducting vendor evaluations, and executing large-scale transformations.
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