What risks are at play when you use a third party data provider to populate your data on your own website?

In this age of renewed focus on cost savings, I have noticed quite a few firms are increasingly using third party data provider data for their own products on their own websites as a way of reducing their internal data management costs. At face value, it seems like a reasonable way to drive down cost for what can be a very serious cost driver in any asset management firm.

However, you can think about it in another way. What message does this give to the market, to the potential investor? Does it say that you are incapable of managing your own data, or even that a third-party data provider has a better grip on your data that you do? What does this say about your firm?

If the data provider errs and promotes inaccurate information about your product on your website, sure they may take a hit – maybe a month’s fee in SLA credits, but who takes the true financial burden, who takes the reputational hit, who deals with the regulators who arrive on site for a multi-week due diligence audit?

Also – people may make investment decisions based on incorrect or out of date information – customers could choose to withdraw their investment, and new prospects may decide to invest elsewhere. If it turns out, that your funds were mis-represented in public, you will suffer damage to your reputation and to your brand and you might even have to take corrective action if any investor loses money due to errors in the information that was provided.

It all comes back to caveat emptor – buyer beware – you get what you pay for.

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”?

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.