If you cannot demonstrate you are in control of your product data, how can you claim you are in control of your investment management process?

One of the key decision criteria in any RFP/mandate selection process is the analysis of the investment management processes in the firms vying for the business.  While demonstration of consistent past performance per unit risk measure is a key determining factor in the process, it is very rarely used as the final decision criteria, more often than not it is only used to create a short list. Once the short list has been created, it is then down to deep analysis of the investment management process – specific attention is now being placed on the balances and controls applied to the investment management process, after all the new post-2008 investment era is highly risk averse and there is now heightened concern and scepticism around returns which are achieved in loose and fast environments.

With such intense focus now on the controls in place within the investment management process many firms are actively investing in promoting the governance they have in place. The result is often a “dressed up” process that will not pass the muster of a deep analytical audit. The placement of billions of dollars in investment is not taken lightly and any attempt at “dressing up” the process will be seen exactly for what it is.

Product data that is communicated externally is a key facet of any due diligence and any failure to demonstrate appropriate balance and controls to ensure information being pushed into the public/investor domain is accurate, consistent and timely will be noted.

Investor demands for greater breadth and depth of the information being communicated, along with increasing demands for more frequent updates, is leading to an exponential increase in the balances and controls that need to be in place to support the product information communication processes. This in turn is leading to serious headaches for compliance as they need to be sure the governance and applicable stewardship is fit for purpose.

As a result, firms who are unable to demonstrate they are in control of their client reporting process are very unlikely to be able to demonstrate they are in full control of the investment management process. Of course, there are firms which have excellent investment management processes, but you cannot derive the inference that the client reporting and product data management governance and stewardship meet the same benchmark. The inferences tend to work on negative side – i.e. if the due diligence finds there is poor governance in one area of the company they will have the impression that the same lack of balance and controls permeate the firm.

So beware what you push into the public domain – information you communicate about your own products needs to be consistent across the web, client reports, marketing decks, factsheets and RFP responses, it needs to be accurate and it needs to be timely. There are firms that have excellent demonstrable risk-adjusted returns that are not winning mandates because they cannot provide demonstrable reassurance that they are in control of core activities within their firm, remember governance is the talk, stewardship is the walk.

Getting the house in order for a post RDR world

2012 is set to be a dynamic year in the financial advisory sector. With the FSA’s Retail Distribution Review (RDR) coming into effect in December 2012, IFAs have to up the ante with standardised professional qualifications and increased transparency of charges and services. With time running out to comply, it is not a matter of when, but how to prepare for RDR. In fact I recently attended FIMA Europe in London which echoed this trend. Post-RDR preparation is the number one priority for internal investment within asset management and advisory firms next year.

The requirements of RDR have also meant that companies’ sales and marketing teams are demanding precise and timely investment product information to support new distribution channels. This includes having in depth information at their fingertips to develop slicker, more accurate and timely product sheets. This helps to build the level of investor trust and enhance client service by ensuring consistency of information across a company’s website and its product data sheets.

 Therefore arming financial advisers and asset managers with real-time accessibility of fund product information is the first step needed to demonstrate the necessary transparency required for RDR.  Putting in place a platform that gives investors a current product view is essential. This platform must be able to pull up-to-date, accurate data immediately. It also lays the groundwork to build the level of client trust. The companies that have invested in intelligent communications infrastructure and platforms will be the ones better positioned to stay ahead in a highly competitive market.

Ultimately, taking a forward-looking approach to RDR will be paramount. My advice? Putting the right risk mitigation and regulatory compliance tools in place ensures effective data governance, builds client trust and importantly helps maintain a competitive edge.

Improving reliability and trustworthiness of investment product data will deliver returns

More than ever before, investors are demanding that asset managers up their game with regard to the quality of information they are presented with at point-of-sale or indeed in post-sale statements and reports.

This in turn is leading the heads of distributions and sales in asset management firms to demand more reliable and trustworthy data from operations. They have recognised that high quality information about their products can be used as a differentiator in winning new business, and that it positions them to deliver best in class client service which leads to higher levels of customer retention.

This data is directly used in the monthly and quarterly production cycles that serve their clients with regular updates on investments and power up the sales engines and related materials in the go-to-market side of the business.

But, surely investors are only interested in the risk-adjusted performance? Why would the quality of information in point-of-sale documentation or reporting influence an investor?

The reality is that investors do not, and should not, use past performance as the sole criteria in their decision process any more  – so many other factors are important. The same applies to distribution channels for funds -  fund providers need to differentiate themselves from the pack.

So clearly the distribution channels want good products to sell, but they need good materials (and good information) to help them make their products stand out from the crowd.

They not only want good sales support materials though, they want them on time, and ideally, they want them before their competitors have theirs. They want to wow the investor with the breadth, depth, and timeliness of the information. They want to ensure that whatever they present matches 100% what the investor will find on the web.They want to use the latest technologies to deliver the information to the client – support for a touch screen tablet is the new must-have request from  the field sales teams.

So, having a good product is a given. Having smart and exciting ways of delivering point-of-sale information to the potential investor is a given. The best product in the world, and the sexiest of sexiest tablets will be useless if the content you are delivering is late, limited or just plain bad.

Investment decisions are built on trust, trust in the advisor, trust in the brand of the provider, and trust in the material being presented.

Trust in the product is built by providing clear, deep, transparent information on the product at point of sale – so one or two page fact sheets that are two months old do not cut the mustard.

Trust in the information being communicated is the foundation on which the investor will build their impressions – it is their window on to the organisations they are doing business with (or considering doing business with).

The investor wants an appropriate mix of qualitative and quantitative information – too much text and not enough stats make it look like you’re hiding something, too much stats and not enough text make it look like you have a lightweight analysis team.

The investor wants first-class, qualitative analysis of the market segment / strategy that the fund is targeting – they want to understand the product and market risks at play. They want quantitative and technical analysis that open the lid on where the performance and risk of the fund is being generated, and they want to understand how this breaks down when compared to peer-groups, external category averages and the stated benchmark.

Something which very few asset managers have embarked upon is providing advice on which products from the same provider (currently) have a correlation co-efficient that would lower the overall risk of a portfolio while maintaining overall target performance – think about how Amazon.com markets books that are related to each other.

Finally, clear unambiguous presentation of the fees/charges for the product, build confidence and support the trustworthiness of the advisor, provider and product alike.

To summarise, by sorting out the “plumbing” i.e. the flows and quality controls around product information from various internal and external sources, sales and distribution can leverage this reliable and trusted data to accelerate new customer acquisition and increase customer retention rates.

Convergence of retail and institutional

I have noticed a definite trend over the last number of years with respect to the convergence of the retail and institutional worlds within asset management firms.

It is not simply just a convergence of the product and service offerings, but also the internal alignment of the teams responsible for each business line.

The operating models that were at play 2-3 years ago had these teams run on separate lines, now firms are aligning their internal structures along functional roles as opposed to business lines, in turn blurring the line between retail and institutional.

 So what is happening out there? What are the drivers? What is causal? What are the symptoms?

There are several key drivers that I see in play:

1. There is board and shareholder pressure to build leaner operating models that scale better and deal with financial market changes in a more flexible and predictable manner. This is borne out of the major flux we have seen in the financial markets since the end of 2008 and the renewed focus on operating costs.

2. There is a growing level of investment savviness amongst retail investors, in particular with the key market segment that has a high level of disposable income. These investors are demanding greater depth and breadth of information on their portfolios, thus driving the retail (product- focussed) reporting model ever closer to the client-focussed reporting model of the institutional market.

3. Institutional clients are demanding glossier client reporting artefacts – something which the retail side of the business are generally more adept at producing. This combined with the demands from the institutional sales teams and channels for product-like factsheet documentation for the various strategies and composites being marketed, is a key driver in getting the output production teams internally more closely aligned.

The results of these drivers are that internally the business lines are being remodelled and combined such that the retail (product) reporting structures are a by-product of the more bespoke client-focussed institutional lines.

The retail investor is also being offered increasingly complex products; synthetic ETFs, Absolute Return funds, Long/Short strategies and SMA/WRAPs.

In turn, retail investors are demanding increasingly complex statements and monthly factsheets – note the increase in retail asset managers offering detailed equity and fixed income attribution reports, both at product and account level.

Asset management firms have been quick to grasp the obvious efficiencies available by viewing the product side of the company as just another institutional client – thus enabling them to unleash the power of their considerable investments in client reporting solutions to tailor them for the retail line of business.

Another driver in the area which is driving consolidation of the systems that service both lines of business is the focus on building an investment product master to deliver a formal data quality management framework to support the considerable desire to produce better quality data and content in a more timely and efficient manner.

So in the future, we should expect to see more, not less, convergence of the business lines. Clearly, the two lines of business will always have clear demarcation lines in terms of level of service, reporting, fee structures and distribution, but the back- and middle- office teams and services that serve the business lines will see continued consolidation to leverage the obvious efficiencies and quality improvements being demanded by investors and shareholders alike.

Buy or Build?

In the world where asset management technology and data quality management departments intersect, a perennial question is raised vis-a-vis implementing technology frameworks that support the data quality management process, build and manage various master data systems (e.g. security master or product master) – should we partner with a technology vendor with a best of breed solution, or should we just build it ourselves?

Like many such perennials there is no right or wrong answer. As a technology vendor, I often argue that something like data quality management is not actually the core competency of an asset manager and rather than figuring out how to manage their data, they should focus on their investment product strategies, growing their customers etc. I do sometimes wonder though if some of the asset managers out there are financial technology companies with an asset management firm bolted on or just plain vanilla asset managers. There are some managers that have actually spun off technology companies themselves based on internal developments.

My own experience is that there really are just three camps:

 1. Build it ourselves unless there is an ultra compelling reason not to;

 2. Apply a balanced decision-making process to weigh up the pros/cons of doing an internal build versus finding a vendor to work with;

 3. Use a vendor unless there is an ultra compelling reason not to.

Are any of the camps more correct than the other? Not really – they have their reasons for the strategies they employ. There are ultra successful examples of all 3 company types – so adopting one or the other strategy does not seem to have held anyone back, but that all being said – you would have to perceive that those in camp #2 have a more pragmatic view on life.

Camp #1 companies tend to be IT-led organizations, where technology is a key driver in all aspects of what the company does and so is at the forefront of all strategic decisions – hence the need to retain internal (and full) control of all technology in use. They would normally be fundamentally opposed to outsourcing any aspect of their business.

Camp #3 companies tend to be “IT-deniers” – they are obviously the complete polar opposite of camp #1 companies and tend to be 100% led by business. The IT department is there to support and maintain systems and does not form part of the strategic fabric of the organization. One of the goals will be to maintain a low IT footprint and outsource wherever possible.

Camp #2 is the hybrid – they recognize that technology is important, but are not beholden to their own IT department. They are of the view that if there is a specialist vendor out there that has specific domain expertise and has built the same solution/product over and over again for many of their competitors, then this company will deliver a best in class solution – they retain their own IT resources for delivery of standard solutions for which an external vendor adds no specific value, or  for areas where they believe they have unique USP.

In my opinion, Camp #1 is made up of about 30% of the market, Camp #2 would account for 50% and Camp #3 would account for 20%.

The pragmatists amongst us recognize that camp #2 are probably the most balanced of organizations, but these companies really do struggle with the challenge of identifying what they should and should not outsource… it may depend on the size of the potential project or the expertise required.. or the business may influence a final decision.

Of course once a decision is made to use an external vendor, next choice is “local-install or cloud”?

Recent Panel Discussion at TSAM USA

July has been a busy month with client engagements and travel but I wanted to add a blog about the event I attended in New York in mid July.

Many people will be familiar with TSAM, the annual buy-side technology and operations event, which is usually attended by senior operations, marketing and IT executives. I always enjoy these industry events as they offer a great opportunity to network and catch up with people in the industry as well as finding out about the latest trends and developments.

I had the pleasure of participating in a panel discussion on “Critical issues in data management” together with industry veterans: Regina Trach, VP Marketing Services at J.P. Morgan Asset Management, Gerard Walsh, Head of Delivery, Global Strategic Solutions at Schroder Investment Management, and David Bates, Principal at Citisoft. The discussion was moderated by Uday Singh, CEO of Osney Media. It was only supposed to go on for 30 minutes but ended up stretching into an hour as there were so many questions and such a lot to talk about.

Initially, we focused on what the key issues were in the data management area, with most of the panel agreeing that drivers for data management projects centred around managing risk, complying with regulation and also managing the data “overload” – what to push out, when, and to whom. Gerard from Schroders said that as clients became ever more demanding, they needed to get timely and accurate data as fast as possible in whatever way they wanted it whether in person, in a report, on a web page or as an app on an iPad. J.P. Morgan recently launched an iPad app for advisers and feedback has been phenomenal. But, getting information to devices is a major data and integration challenge.

In terms of regulation, one of the concerns is that asset managers know there will be demands for transparency but don’t know what they will be. They are wary of the SEC and FINRA and what they will actually be looking for. The SEC is likely to take information and fact sheets from an organization’s website and compare it – and will want to ensure it’s all accurate. They will also want to know historical information e.g.”can you show me what your website looked like on April 11^th, 2009″? Asset managers still have a business to run and the wall of regulation can be a challenge – but they must be compliant.

We then went on to talk about the amount of data that is available and how accessible it needs to be… With large global asset managers averaging 4.5 million items of data each month, it’s hard to answer the question “Do you know how good the quality of your data is?”  You really need to work out what to push out to your various audiences… this is where using segmentation/ audience management is very powerful. If you have a contact strategy where you test email open and click thru rates, track website visitors and monitor Twitter, you will know who is listening to you and find out what they want to hear. 

We then went on to talk about what is the right material to push out? Should we be reviewing what we need to report on. What do customers need?  We also need to focus on the consistency of information across the organisation e.g. surveys, web presentations. Separate areas of the business are generating data and enabling it to get out. I talked here about how marketing ops have not been well served by IT and there are lots of manual processes involved in getting data to market. If data points are managed on spreadsheets, you have to have proof readers coming in to get material out to market and you have a much higher risk of error. Setting up a data governance process and ensuring that data is corrected at source will help greatly and you won’t end up with marketing teams chasing, checking and keying data at the last minute.  Also, if you automate the process, you will significantly reduce your fact sheet production time.

Then we talked about actually getting data management projects off the ground. It can be quite difficult as often times C level doesn’t realise there is anything wrong with the data. It might be easier to focus on a smaller project first and try building it out from there. For example, for Schroders, the web was a big driver and they wanted to provide their sales force with tools that can help people make investment decisions – having timely, accurate and consistent data available on the web was a key influencer.

The other key influencer will be cloud computing– not just on the entire IT area but on other areas within the organisation e.g. Salesforce.com.  Asset managers are more likely to outsource if it’s not a strategic advantage to do it themselves.

 

Data Management & Client Service

There has been a building murmur of conversation of late in the asset management community about client service, specifically with regard to the impact of data management of all things on this. It is fair to say that given the regulators’ continued defence of the investor and their insistence on the fair treatment of customers that the necessity to communicate timely, accurate, and consistent information to existing and prospective clients is growing by the day. This combined with the increasing demands of the end investor for a more up-to-date and frequently updated, broader range of data means that today’s asset managers need to sort out their information “plumbing” or face being left behind by their competitors (and their customers).

 Three years ago, buy-side firms were looking to embark on data management projects to improve efficiency and remove silos and manual processes. While these drivers are still valid, more and more data management projects today are driven by a desire to improve the quality of information delivered to the front-office. In fact, a recent asset management survey confirmed this as the number one operational focus for most buy-side firms. In addition to this, asset managers looking to achieve best in class client service or break into new customer segments and/or markets commonly recognise the value of a solid product master as the base platform that can be leveraged in order to achieve all of these strategic goals.

 A product master puts an asset manager in control of the information about their funds and accounts. Once all of the data controls are in place to centralise and clean the product information, the product master can be leveraged across the enterprise to ensure that all consumers of the information (internal and external) can have full confidence in the timeliness, accuracy, and consistency of the data they are viewing. It also provides auditors and regulators with the evidence that the asset manager has recognised the importance of this data and has put systematic controls in place to address it.

While the concept of a product master may be relatively new… it is gaining momentum and we’re hearing more and more about it in the press, at events, and directly from the industry. Watch this space!

Technology in good hands

No matter how sophisticated the plane is, we trust the pilot to bring us safely to our destination. Don’t we? The same principle should apply to the management of your Product Master. No matter how good the technology, it is the people who will make data governance a success.

When selecting a partner in data management, do not underestimate the service element of their offering. Effective data governance and stewardship requires a cultural shift in the organisation that can only be nurtured through people. Technology has a key role to play but it is human interactions that will win the hearts and minds of the stakeholders and secure their buy-in. This is particularly true when data is coming from a wide range of sources with different attitudes towards data quality.

Your data quality management service provider should be focused solely on your industry. The better your service team understands your business and the business of your data sources, the sooner they will seamlessly integrate with your data supply chain and become part of the fabric of your organisation. This will generate trust and goodwill on the part of the data suppliers as they will see the data management service team as a partner that can help them improve the quality of their reporting. Knowing that the service team has an intimate understanding of their data will also generate respect and promote accountability on the provider side therefore driving them to achieve the data quality standards required by your organisation.

 Managing processes and data provider relationships is only part of the value that you should seek from your service team. Management reporting is another area that will benefit from a strong service provider with a deep understanding of your industry. The technology will generate all kinds of statistics on the reporting cycle such as data timeliness achievement rate, number of validation rules applied to the data, number of exceptions raised by such rules, number of data points resubmitted, etc. These are of little value unless analysed by a team of experts that can deliver to you meaningful content and recommendations that will empower your business to improve data quality on an ongoing basis. Your service team should report on the performance of your data providers in all four dimensions of data quality: timeliness, completeness, consistency and accuracy. You should be provided with trends for each of these Key Performance Indicators, benchmarks that you can measure against and clear recommendations on how you can exploit further the technology to drive data quality.

Technology combined with Service Excellence that is focused on your industry is the right combination to bring your data governance programme safely to where you want it to be.

Data Management in the Cloud..

To date there has been some reluctance amongst asset managers with respect to managing their security and product master data in the cloud, yet the same organizations are actively pushing their CRM data into the cloud. Why is this? Why does the sales side of the organization readily embrace such change when the investment operations teams are more cautious?

Security concerns cannot be the reason, even if they are the reason most often cited by investment operations teams who are not willing to embrace the cloud. For a financial services organization, there is nothing more sensitive than their clients’ personal details – so if you consider the number of firms actively using cloud-based CRM systems like Salesforce.com – this negates the security argument.

 But positioning of security and product master data in the cloud is just as sensitive. Of course, the security and product masters contain commercially sensitive data, but no more sensitive than client data found in many CRM cloud implementations. So we should agree that security concerns, while valid, are not the core reason we do not see the same level of enthusiasm.

Some would argue that the sales side of the organization are by their very nature risk takers, but the technology side of the business might argue that it is the quality of the offerings that is the only impediment to such decisions.

Cloud service providers, whether they are CRM or data management vendors, are all massively aware of the security risks posed by hosting sensitive third-party data – the fact is your data is probably more secure in a cloud provider’s environment than in your own, such is the focus on security.

Some believe that it is the complex relationship that often exists between IT and the sales and marketing units that is the root cause for so many sales units engaging the cloud. In the asset management world, the sales and marketing teams are often at the end of a long line of business units looking for strategic IT initiatives to be acted upon. To this end, sales and marketing teams have learned to become self-sufficient, which as an aside is probably also the root cause for the creation of the myriad of manual processes and Excel / Access-based data management initiatives found in the marketing and sales departments.

Since the investment operations units in asset management organizations have traditionally had a much closer relationship with the IT department, they have never felt the same need to explore alternative solutions. This is not to say that investment managers are not exploring data management in the cloud, just that they require a greater level of understanding of the advantages and disadvantages of such a venture. The providers of cloud-based technology and services themselves  have also had to up their game to sell the benefits.

So what merits does the cloud bring to an investment operations team? First of all, let’s debunk a myth – putting your data management solution in the cloud is not outsourcing, nor is it off-shoring. Cloud data management service providers generally engage in partnership-led operating models where they work hand-in-hand with the client towards a common goal, or they simply use the cloud provider as a technology platform in the same way they would engage with their own internal IT department.

 Working in the cloud means:

 1. Not having to worry about where you currently fit into your IT department’s strategic roadmap

 2.Your environment is managed by a team of professionals whose only goal is to ensure that  your environment is working and secure

 3. You are always on your vendor’s latest released platform version

 4. You have one less system to worry about in your BCP plans

 So what about the disadvantages? And how do you mitigate against any risks? What  should you be worried about?

1. What happens if you want to disengage from your cloud provider and take your process and data back in-house, or indeed have it managed by a different provider?

•  This is something that needs to be considered carefully before engaging with any solution in the cloud. Before you engage, ensure that your contract and your SLA are watertight and replicate data back to your own data center so you always have a local copy at arms reach.

 2. How do you integrate the solution into your organization’s broader BCP plans?

•  Ensure the vendor you choose to partner with has a fully documented and regularly tested business continuity plan that ensures your data is available according to your own stated ‘Recovery Time Objective’ and ‘Recovery Point Objective’ – then ensure your vendor runs the BCP tests with your involvement.

 3. How do you know your data is secure?

•  You absolutely must do your full security due diligence – including externally-commissioned penetration testing.

 4. What about latency between your site and the cloud?

•  Run full latency checks before the engagement and ensure latency is captured as a KPI for SLA measurement. Cloud providers are generally located at key Internet hub data centers to reduce latency concerns

5. How do you know the vendor will provide a good service?

•  If you go down the partnership route, ensure you have an SLA that is considered an evolving document which is regularly reviewed and enhanced as your relationship develops. The SLA should set out the expected minimum service levels and the target service levels – with appropriate KPI measures identified for regular reporting.

 6. What if your vendor goes bust?

•  Before any engagement, ensure your due diligence process includes a full financial review. In addition, insist on an escrow agreement to ensure you have access to the technology software in the event that the vendor is no longer financially viable.

White paper on Mastering Investment Product Data

Last October I posted a blog on “Mastering Investment Product Data” . At that point I was gathering my thoughts on the subject, but I have just published a white paper which explores the concept of master data management as it applies to investment products and why asset management organizations should have a product data management strategy. It also specifically introduces the concept of an investment product master and sets out to explain its value in the context of a data management strategy for an asset management firm. You can download the white paper here – or drop me an email and I will send you on a copy – do drop me a line with comments or feedback on it.