7 Signs of a Failing Financial Portfolio Management System
One of the biggest threats most Portfolio Managers face is the prevalence of legacy systems.
Over the past three decades, investment advisers have been empowered by the advent of technology, from simple spreadsheets to complex in-house developed systems. From that moment to the present, the industry has experienced exponential growth and with it, enormous complexity. Challenges include 24-hour trading in markets from New York to Sydney, different accounting standards, shorter settlement cycles, and of course, increased regulatory and security issues, to name a few. As if that wasn’t enough, technology seems to change every day, causing many legacy systems to struggle to keep up with customer demands. Cheaper, faster, smarter and more efficient standards are expected; they cannot be the exception. Failing systems can drastically undermine your company’s ability to serve customers and maintain market share, let alone grow the business.
In this age of big data, business intelligence, and data analytics, legacy systems can pose a huge risk to your business. If daily operations require the ability to manage processes, distribute and accurately report financial data, being behind the curve is not an option. If this sounds familiar, it’s time to ask, “How did we get here?” and more importantly “How do we get out?”
Here are the seven signs that will tell you if you have a broken system and how it should ideally work:
1. Are you facing difficulties managing data due to disparate systems?
Maintaining data on different systems or manually moving data from one system to another will lead to inconsistencies and errors. Is your data quickly identifiable, consistent across multiple systems, complete, accurate, and reconciled between different systems? If you answer NO to these questions, you need to re-evaluate your platform. Your system must be able to eliminate manual data flow, update all data with a single change, deliver timely and accurate reports, including intraday, and make data easily traceable.
2. Are your clients communication professionals?
Investors expect your reports to be clear, concise, and highly customized to their needs. This statement is especially true for institutional investors. Organizations that can meet these expectations will have an immense competitive advantage over those that cannot. If your current system doesn’t deliver the level of reporting your customers expect, you risk being left behind.
The expectations of your customers are not limited to the form and content of the reports, but also to how you deliver the information. They expect instant access to real-time information, whether through a web portal or a mobile platform to stay relevant and highly competitive, your systems must be flexible enough to send and receive communications through whatever channel your customer chooses.
3. Having difficulty dealing with complex global investments?
Dealing with multiple regional and global investment regulations such as UCITS V and VI, Solvency II, AIFMD and EMIR is a daunting task. All of these regulations require you to maintain reliable, accurate, and transparent data. To comply with these regulations, you need workflow management, data management, and accurate reporting. Data, risk management and maintaining accuracy are critical to meeting regulatory reporting requirements.
With the increase in data sources and data complexity, your organizations need solution providers who can help you manage your data. Your system must not only be scalable, but it must also provide actionable business intelligence in a format that is easy to understand.
Four. Do you find it difficult to achieve the integration of disparate systems?
True integration is not a matter of simply connecting systems: your systems must be able to communicate with each other seamlessly. Manually moving data from one system to another affects its efficiency, increasing the risk of errors. Integrating disparate systems not only reduces these risks, but also improves efficiency by ensuring that back office and front office staff can view transactions, cash positions, and inventory identically. This ensures that entries are accurately recorded in your Investment Record Book (IBOR).
Many organizations use multiple systems for accounting, reporting, reconciliation, and customer information management. If different vendors have provided these systems, getting them to talk to each other could be a challenging process. If you have workarounds or wallets that reside outside of your legacy system, it’s time to rethink your usability. Your system must allow for a centralized and standardized portfolio management activity. In an end-to-end portfolio management solution that is based on an open architecture, the work of multiple systems is consolidated on a single platform. Such a solution will allow easy access to third-party systems or any other internally built systems, allowing you to reduce the footprint of technology while driving greater efficiency.
5. Increased legal and compliance costs?
A 2013 survey of CTOs suggests that one of the biggest technology and operations challenges facing asset managers is meeting current and future regulatory requirements. Complex regulations make outdated reporting systems more of a liability than an asset. The costs of compliance with regulations such as AIFMD, UCITS V and VI or FATCA are exceeding many budgets. Additionally, aggregating data from different systems for compliance reporting is a resource-intensive and risky process. To simultaneously reduce these risks and costs, your system must be prepared to deliver consolidated reports, leveraging the automation, integration, and standardization of data from various sources. Your systems should also eliminate manual data collection for reporting, increasing efficiency and reducing labor costs associated with compliance, while ensuring completeness, consistency, and reducing operational risk.
6. Getting scrutinized by investor due diligence?
After surviving the 2008 global economic crisis, institutional investors have become extremely cautious with due diligence, leading to immense scrutiny of trades. The 2008 crisis exposed operational risks: the risk of failure that not only involved market forces but also a lack of infrastructure and controls. Investors have also become increasingly tech-savvy; they are asking the right questions and they know what to find. To remain competitive in this vital market, your system must withstand intense investor scrutiny. You need to demonstrate that you have the controls in place to manage risk efficiently and that you are already adhering to well-organized processes. If investors see loopholes in your workflow and discover that you are relying on manual processes and workarounds, they will take their money elsewhere.
7. Are legacy systems not receiving support, maintenance, or enhancements as expected?
A product is only as good as its supplier. Is your supplier paying enough attention to you after the sale with 24/7 support? Does your provider have a history of continuous product updates? Do you provide product training? Are they attentive to your suggestions or new ideas? Your vendor must provide long-term support if you want your new system to last. Your product must be scalable, flexible, and must be based on open source technologies. In addition, your provider should not only help you configure, but also ensure that your systems work optimally without interruption. A relationship is a two-way street; as such, vendors need to be able to respond to your issues quickly and also help your business adopt new features when necessary.
Invest in your growth
A portfolio management system is the heart of your business. With a weak system, your business may be at serious risk and you may not have time to address it before it fails completely. Investing in technology will bring you greater efficiency, reduce risk, and help you make informed decisions. Your provider, therefore, should have a proven track record of long-standing commitment to services, continuous improvement, and support as you grow.