In an increasingly complex and AI-driven, data-driven world, streamlining and automating middle office functions is coming to the forefront.
Automation and use of machine learning tools are necessary components in an investment manager’s business model.
After all, rising costs and limited resources - be it time, talent, or money - put pressure on wealth and asset managers to be more efficient.
Additionally, financial transactions and the data management surrounding the middle office are more complex than before.
Automation is a good first step towards an overall better investment operation. Check out the workflows below that investment firms can streamline.
Trade settlement processing, clearing, and the related work has been a manual process, and prone to error.
And according to a LinkedIn poll from the Depository Trust and Clearing Corporation (DTCC), 43% of respondents said “allocations and affirmations” as the process area that would require the most transformation as firms begin to prepare for a move to T+1.
The good news is there are a lot of trade settlement and clearing automation software solutions to help.
Adding to that, the DTCC mentioned “simply switching from manual to automated processes for allocation, confirmation, and central matching significantly reduces the number of post-trade exceptions and costly reconciliation efforts. Trade affirmation and instruction for settlement can be fully automated when a centrally matched trade between an investment manager and executing broker occurs, eliminating the need for either party to take further action.”
Calculating investment performance and attributing returns to various factors is crucial for informed decision-making.
But like all manual processes, they're prone to error.
Incorporating automation can ensure calculations are performed consistently and accurately, even for complex investment strategies.
Related to performance, trade settlement and clearing, data management is an area that can be improved upon with automation.
Fragmented data is at the “root” of settlement fails, according to panelists in a discussion at Sibos, a financial services industry conference.
The fragmentation results in delays and inefficiencies that create a mess in settlements process, and with shorter settlement cycles, there’s a need for better quality data.
While a challenge, placing emphasis on quality information is key to trade settlement success. Leverage APIs to the fullest. Make sure every custodian and broker are sending you the accurate trade details regularly. Identify repeatable processes.
Even outside the realm of trade settlement, automating any kind of data input or aggregation is a best practices. Data drives decision-making, and to have the information you need sooner, the better.
Work needs to get done quickly and accurately, as we’ve seen with trade settlement. Risks abound when improperly executed.
In addition, other forms of risk management like calculating profits and losses (generating P&L reports) are areas that can be automated.
While having the P&L statements ready is important, calculating the numbers will likely take longer than you expect. To automate is always better.
Form ADV updates, 13D, F reports, and AUM reports are all investment management compliance activities ripe for automation.
And with new regulations and ensuring adherence to the rules, the SEC and other regulators want to make sure all Registered Investment Advisors are following suit.
Should an auditor stop by, you want to feel confident that you have accurate documents and reports ready to hand over.
By automating, it’ll relieve the stress of scrambling last minute.
We understand; it’s easier said than done.
It’s one thing to tell an investment firm to automate, but it’s another to do it yourself in a cost-efficient manner.
And it’s ok if you don’t know how; an outsourcing provider like Empaxis can handle the automation for you.
Once the provider understands your workflows, they can set up and maintain the processes for you.
Indeed, middle-office automation via outsourcing is a highly effective approach.
Jonathan Balkin, co-founder of investment management consulting firm Lionpoint Group, shared his take:
“In choosing to work with an outsourced partner instead, they access professionals who have been successful at operating an efficient framework and have invested in technology to scale their clients’ business models.”
“With cloud-based technologies and better integration options, clients can more easily ingest data from their administrator to have control and across of their data in an automated way with limited technology overhead.”
It's a challenging time right now:
Under these conditions, any chance to automate middle-office reports, settlement, data, and compliance should be taken seriously.
Not only can the automated workflows allow wealth and asset managers to save time and money over the long term, but it lets them scale their business more easily.
And with an outsourcing provider like Empaxis there to help, you'll reap the full benefits of automation.
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