Webcast: The impact of upcoming regulation on data management

July 18, 2012

I am hosting a webcast on “The Impact of Upcoming Regulation on Data Management” on Wednesday 25th July 2012, 3pm BST, 10am EST.

Regulation is a key challenge in the industry and in an unprecedented age of openness and transparency continues to be the no. 1 driver for asset managers investing in data and reporting initiatives. Companies want to mitigate the risk of inaccurate information being in the public domain and many are embarking on data management projects – which will save time, reduce errors and automate processes. The key themes we see center on capability to deliver a systematic, repeatable and auditable data publication process for client-facing data.

This webcast will be presented by myself, and will focus on how upcoming regulations will impact the industry and how asset managers need to prepare to ensure they stay ahead in a highly competitive market. Specific topics to be covered include: the latest version of AIFMD, the final throes of the Retail Distribution Review, the latest on KIID for PRIPS, UCITS V, how being important or “SIFI” is no longer so desirable, Volcker, FATCA and last but certainly not least Pillar III of Solvency II.

Finally, I will touch on what is around the corner and run through some recommendations with respect to preparing for the swathe of upcoming regulatory change.

To register for this webcast please click here.

I look forward to welcoming you online on July 25th.

Leave a Comment » | Data Quality, Regulation, Event, Data management, KIID, Dodd Frank, FINRA, UCITS, RDR, product master, Data Governance, distribution, FATCA, Volcker Rule | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , | Permalink
Posted by Ronan Brennan

Convergence of retail and institutional

October 20, 2011

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.

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Posted by Ronan Brennan

Data Management in the Cloud..

May 27, 2011

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.

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Posted by Ronan Brennan

Regulation Survey Results: Part 2

May 10, 2011

This piece is a follow-up to my most recent blog posting on the results of our recent “data management and regulation” survey. I think the survey gave us a good chance to get a snapshot of what people are concerned about in terms of upcoming regulation and how it will impact their business processes.

The last posting was getting very long so I only posted some of the results. I finished up talking about the regulations that people were most concerned about in North America. The third question in our survey concerned European regulation and the topical issues there.

The question was: “in Europe, which of the following regulatory discussions concerns your organization most: RDR in the UK, UCITS IV & KIID for cross border funds, AIFM for hedge funds, the rise of Newcits, the upcoming UCITS V directive or the changeover from CESR to ESMA?”

 

Not surprisingly nearly two-thirds of all respondents indicated the big discussion point in their firm was UCITS IV and KIID – if anything the surprise is that it did not have a higher response. Maybe this is because many firms have focussed so heavily on preparation that they are very confident they are well placed to deal with the upcoming requirements that UCITS IV brings as well as the ability and readiness to initiate publication of KIID documents.

Nearly 30% of respondents indicated the AIFM directive, and an additional 17% indicated Newcits were items of discussion and concern in their firm – a clear indication that alternative strategies and the hedge fund industry are key industry focus points in the years ahead.

Somewhat surprising though is the fact that UCITS V is already a discussion point for 17% of respondents – the belief here is that the depositary structures that facilitated Madoff and manager remuneration are going to be addressed – these topics will ensure this is a hot topic of conversation for years to come.

Finally 17% of respondents indicated Solvency II was a key discussion point – this will become a key topic of conversation for any asset manager that has mandates emanating from the Life and Pension sectors – the demands on risk control, asset liability, ability to be transparent and report accordingly are all hot topics in the Sol 2 world.

Next up was the question: “How prepared is your organization for dealing with upcoming changes in regulation - are you totally prepared, somewhat prepared or not at all prepared?”

 

Thankfully the vast majority of respondents are at least somewhat prepared, but surprisingly only 15% or so indicated they believed their firms were totally prepared.

So it seems like the adage – a lot done, but more to do – seems prevalent here. Most firms are aware of what needs to be done, they have plans in place, but in some cases these plans have not been fully executed.

More reassuringly, we see that only 3% of respondents indicated that their firm is not prepared at all for the changes in regulation that are coming down the tracks. Overall, the responses to this question indicate that firms are struggling to prepare for the enforcement of regulatory reform, particularly in terms of their product data.

The next question in the survey was: “Do you think that new regulatory reporting requirements will change your organization’s attitude towards data management?”

The responses to this question were most interesting…… 

Nearly one-quarter (23%) of all respondents indicated that recent regulatory changes will force their firm to totally change their processes for getting their product data into the market, while only 12% of the respondents indicated that their existing processes were fully supportable, automated and left a full statement of record to facilitate audit.

The greatest number of respondents (56%) indicated that their firms only needed to make some amendments to the existing processes in their firm, for the management of product data.

The response to this question aligns with previous responses – where it would appear that in most cases firms know what they need to do, but have not fully executed their plans.

Overall, the responses to the survey questions indicate that firms are struggling to prepare for the enforcement of regulatory reform, particularly in terms of their product data.

The final question in the survey was: “What are the biggest challenges in getting your product data to market – are they manual processes, timeliness, cost, accuracy or something else?”

 The big shock here is that just over half (53%) of respondents indicated that the biggest obstacle to getting their product data to market is manual processes, with a similar number indicating that timeliness was an impediment. It is not surprising that 40% indicated cost was a problem – this most likely results from having issues with manual processes.

Of most concern though should be the more than one-third of respondents that indicated accuracy was a problem for them. This is worrying indeed when you consider the considerable focus that has been placed on data management in recent years and the vast amount of IT dollars that have been spent trying to address the problem.

Finally the 6% other – commented that ability to maintain a statement of record or auditable trail of ownership was their greatest challenge – which is interesting – the inference we derive here is that these firms have automated processes and reasonable levels of accuracy, but proving this and showing a demonstrable audit trail to auditors and regulators alike is a particular concern.

So that’s it on our survey results – I thought they were worth sharing with a wider audience and it might give you an insight into how people are preparing for upcoming regulation.

Leave a Comment » | Data management, Data Quality, Dodd Frank, KIID, Regulation, Survey | Tagged: , , , , , , , , , , , , , , , , | Permalink
Posted by Ronan Brennan

Client Reporting – Data Management: The Critical Issues

November 29, 2010

I recently  participated on a panel discussion at the Osney Media’s Client Reporting Conference in London that was chaired by Peter Bambrough a management consultant at Citisoft.  The topic for the panel was “Data Management: The Critical Issues”,  and on the panel I was joined by:

  • Philip Keeler, Head of Operations IT, Hermes Fund Investors Ltd
  • Bob Simon, Senior Director of Business Development, CorrectNet

The first question that was presented to the panel was “Why do data management projects go wrong?”

My own view point here is that projects I have seen fail were nearly all down to a lack of clear data governance, stewardship and generally poor communication.  In order for a data management project to work there has to be a common understanding of the issues at play. Communication is key here, especially between the middle and back office –  all teams have to be speaking the same language.  Another issue that the data management projects face is the lack of understanding from senior management. As Philip Keeler of Hermes said, “there needs to be a holistic view within the company, senior managers need to be aware of the issues and the implementation processes involved”.

Also when implementing a data management project is it important to break down the project into manageable chunks, make realistic deadlines and achievable goals, this in turn will reduce the risk and make the project less likely to fail.

Some of the interesting points that came out of the discussion with respect to running successful data management projects were:

  • Silo approach is only helpful if you have complete view of the landscape
  • Warehouse approach to everything is always going to lead to failure as they take too long to implement and the landscape invariably changes before the project finishes
  • Better model may to  have data warehouses feeding data hubs, from which business unit ‘fit-for-purpose’ data marts are published
  • Communication both top-down and bottom-up is critical
  • Senior management buy-in to project is essential
  • Multi-tiered stewardship
  • Governance and stewardship operating hand-in-hand
  • Clear understanding of current cost exposure versus the new target state

Another question put to the panel was in relation to getting the right people to work with the data – who are the right people?  We know that it is not a job for marketing departments or indeed asset managers. Organizations need to avoid the “Just in Time” data management operating model where a team of client reporting or marketing execs scrub and cleanse the data just prior to publication.  This is a critical job and the right people need to be there to ensure that it is being carried out correctly.   So who are the right people for the role? It was agreed unanimously that you need to adopt a multi-tiered approach to stewardship – you need stewards operating at the data source level – data analysts – that are comfortable dealing with the low level source oriented quality issues, you need product specialists that are comfortable looking at the data from a product/strategy perspective and you need business analysts working in the front-line teams (client reporting / sales / marketing) that are comfortable looking at the data from a reporting / presentation perspective.

The general consensus among the panel was that communication, understanding the data issues and ensuring the correct people are managing the data are all important elements in the fight against combating data management issues.

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Posted by Ronan Brennan

Battle for the middle office

October 18, 2010

I note that the industry press are starting to pick up on the new battle fronts that have opened up in the mythical middle office - check out the recent article in Ignites.

This is symptomatic of a few things that are happening in the industry today:

1. Opportunities for profitable outsource deals in the back office are few and far between;

2. The middle office offers significant opportunities to service providers who have the innate ability to untie the Gordian Knots.

Let’s look at the first point above – opportunities for outsourced deals in the back office are few and far between – this is no doubt true. There are very few opportunities of interest in the market today – the practice of  ’service provider hopping’ which was prevalent for the past number of years has tailed off significantly. There are many war stories of note where asset managers having moved provider, later wished they had never done so. A lot of this business was put out to market via RFP, thus driving deal values to such a low level that the unlucky winner of the business could not provide the quality of service being demanded by the asset manager.

This raises the question as to whether RFP is the right way to go about sourcing a provider who is ultimately required to be a business partner as opposed to a commoditized widget supplier. Beauty parades are starting to become popular, once more as the asset manager realizes that there is real value in having the right business partner as opposed to the cheapest service provider managing their back office.

The race to the bottom of the barrel between the various providers of back office functions has not only reached the bottom but has bored right through it – the bps rates that are being charged to manage some funds are clearly at a level that risk managers within the asset management companies should be uncomfortable with – it is not a healthy situation.

The cut-throat nature of the back office deals has led to renewed and sustained focus on other aspects of the asset manager’s business that are ripe for outsourcing – the opportunity of note is in the middle office, which leads me to my second point above – the middle office offers significant opportunities to service providers who have the innate ability to untie the Gordian Knots.

Service providers are now looking to lift-out or take on the middle office functions as part of any back office negotiation. In fact, there is anecdotal evidence that certain providers are pricing back office services at below cost level in order to latch onto the middle office opportunities that offer significant long-term margin.

The providers who are winning this new business are the ones who have re-structured themselves to deal with the challenges that the middle office presents. While there were some early horror stories with middle office deals of yore, the  larger service providers have tuned their business up rather quickly to ready themselves for the new battle for business.

The service providers who will prevail will have the scale, technology, culture, but most importantly drive for efficiency, that allows them to take on complex businesses and quickly untie the various Gordian Knots that have formed around the asset manager’s data, technology and operations.

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Posted by Ronan Brennan

The 5th Annual Asset Management Industry Forum

February 15, 2010

I attended the FSO Knowledge Exchange “5th Annual Asset Management Industry Forum” event in December last and was lucky enough to be asked to contribute as a speaker on the panel discussion “Expert Perspective: Best practices in data management outsourcing“.

The core thread of the discussion centered on the criticality of enterprise data management to investment management processes in front, mid and back-office. This panel also explored how outsourcing data management can be used to generate a sustainable competitive advantage in key areas such as research, analytics, risk management, compliance, investment performance measurement and client reporting.

Some of the discussions themes for the panel were:

- What challenges and opportunities do you see in your EDM strategy in the current environment?

- Which parts of your current EDM strategy do you see as the best candidates for outsourcing?

- What makes a good outsourcing relationship work?

- One of the bigger challenges for organizations that outsource back/middle office is the loss of the data management platform to the outsourcer – how do you now support the front-office?

- The biggest concern with any outsource process is loss of control – how do you deal with this?

- How can outsourcing data management be used to generate sustainable competitive advantage and how do you measure the ROI of such an initiative?

- How do you see upcoming regulatory requirements impacting the outsourcing of data management?

A key theme from the floor was whether outsourcing data management led to a loss of control – the overwhelming response was that if managed badly, the process would lead to the feared loss of control, but with the right partner in place and with a true partnership oriented approach to working together there was no reason that any control would be lost, in fact the consensus was that such an arrangement would actually put many asset managers back in control of their data.

Since the event had a strong ‘outsource’ slant – a recurring theme throughout the day centered on how to achieve a true partnership with your outsource vendor – the successful relationships identified all had shared risk and reward and flexibility in approach to service level specifications – with regular service reviews and open dialog.

The following is a quick video interview I gave to FSOkx after the event. I have some further video content of the panel discussion which I hope to post soon.

BTW FSO have an interesting webinar on March 9th which has a very similar theme to a post I made recently, and finally they also have an event in the UK in April – “The 2nd Annual Investment Management Industry Transformation and Outsourcing Strategies Forum“.

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Posted by Ronan Brennan

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