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  1. FRS
January 11, 2022updated 12 Apr 2022 12:38pm

How technology is transforming unit pricing

While fund administration software isn’t new, it really should be higher up the list of priorities for businesses still relying on manual processes. Converting to automated processes provides almost immediate efficiency savings, streamlining processes and optimising operations. In this thought leadership article, Frank Carr, CMO from Financial Risk Solutions (FRS), identifies the risks with relying on manual processes and spreadsheets, the rewards to be gained from automating fund administration, and explains how the company’s InvestPro platform can help with all of this. 

The boiling the frog analogy is often used to describe people unable to react to significant changes that occur gradually, or to events that have become commonplace. In this analogy, the water is heated so slowly that the frog doesn’t notice. By the time they realise the extent of the problem, it’s too late. The frog is cooked.

We see this a lot with firms involved with fund admin processes and unit pricing. Too often, they only begin talking to us once they start to feel the heat. After gradually adding ever more manual processes, they finally realise that they are running a risky operation.

The boiling the frog metaphor also rings true for firms that expand their fund admin business, slowly adding complexity and risk to their unit pricing and investment admin procedures to the point where they can’t see the whole risk. Or they see the risk but believe it’s too hard or expensive to solve. Some also really struggle to mitigate the risk of errors. As a result, some firms have been fined by the regulator.

It’s important to ask yourself: how many people in your firm understand the entire fund admin process and can execute it from start to finish? If you could only send two people into the office to manage the fund admin process end-to-end, would you succeed? Or would the process fail?

If your answer is that the process may fail, and spreadsheets are part of the problem, then InvestPro can help. The software can handle complex fund administration, allowing firms to grow without increasing operational risk.

Unnecessary complexity

As firms tack on complex and related tasks to the admin process, what starts out as a simple task can become overly complicated, time-consuming and prone to failure.

A relatively simple task in unit pricing can often end up being over-engineered as a business expands. New products are added, more assets under management (AUM) come onboard, compliance requirements change, additional layers of approval are required, data analysis takes on more importance, and new sources and destinations for data are needed, with all the reconciliation trimmings you might expect.

Excel allows for unstructured business processes in an area that strongly requires structure and simplicity. And from an audit perspective, Excel can be poor at retaining a linked history of events without becoming too large and complex. Auditors like to know who changed what.

Firms we talk to can suffer from key-person risk. As spreadsheets become larger and more complex, invariably ownership, acumen and maintenance fall on one or two people. Key-person risk is reality here, particularly under Covid conditions where people may be working from home.

As spreadsheets become more complex, more time is required to operate them, making business expansion risky. One cannot simply add a process to a spreadsheet without adding risk.

Many firms that introduce a spreadsheet to the process as a temporary stop-gap measure are still using them a year later. They continue to do so as they feel they have no choice. The thought of implementing a robust, fit for purpose system can scare some companies. While others may feel they’re ‘too small’ to invest in a specialised system. We’ll come onto the good news shortly.

However, it’s not just risks associated with the use of spreadsheets that worries the firms we speak to.

Other concerns include:

  1. How do we ensure that our third parties are doing the right thing? What oversight is in place to check what comes back, given it’s ultimately our responsibility?
  2. How can we automate potentially complex functions like cash allocation, rebalancing, compliance, general ledger integration, valuations, unit pricing, tax and fee accruals, reporting, even reconciliation?
  3. How many of these activities can be automated and completed before we login every day?

Fortunately, InvestPro has these three areas covered.

Prevention

When it comes to fund administration, we would argue that prevention is better than cure. Some firms have left technology transformation too late, resulting in very public and costly unit pricing mistakes.

Given the cost of a unit pricing solution such as InvestPro, relative to the cost of unit pricing errors, a lack of audit and loose and risky procedures, the case for a robust solution ranks equally with something like accurate financial reporting.

Further, real efficiency gains are experienced, allowing firms to re-deploy valuable and experienced full-time employees into value-add tasks and away from maintenance tasks where nothing is gained.

We advise firms to think strategically early if they plan to grow AUM and product offerings.

Do smaller firms need a dedicated solution for fund admin?

This seems a reasonable question. One may ask: can’t we just manage this with spreadsheets? To us, the issue is not the firm size, as all smaller firms are on a path to becoming bigger. It is about doing things correctly or not. Clearly, it also depends on the cost and complexity of implementing a robust solution and the reduced resources of continuing to use them. This, again, is the same for large firms with larger migrations.

For smaller firms, we believe that the risks associated with manual processing and the inability to audit processes can be higher than a large firm. We occasionally see quite complex manual processes employed by smaller firms. But to be fair, we also have come across this in our large clients before they implemented InvestPro.

Smaller firms may also run the risk of failing ‘checks and balances’ requirements, as a small team is responsible for broad sections of the process. Key-person risk is often prevalent, and oversight is thin. Auditors have little patience for errors in fund admin, particularly where fixing them requires additional manual checks. Often, the risk is just being compounded.

Implementing a robust unit pricing solution with oversight and reconciliation features is much easier than other transformations we’ve seen in the long term savings space, yet it mitigates one of the key business risks.

If you are a small to medium firm looking to launch innovative products, you are not alone. All our clients want to stay competitive, and our large ones work hard to stay in the market number one position. Importantly, they list InvestPro as a key system in doing so while keeping auditors and regulators happy. Some of these firms are small and entrepreneurial. They recognise the opportunity to expand using a lean team, staying agile and mitigating risk.

It would be remiss not to mention that a good number of our worldwide clients are large multi-national operators – we serve all shapes and sizes and have configured InvestPro to suit specific use cases globally.

How InvestPro helps

We have talked about the challenges faced with fund administration and unit pricing, but how does InvestPro help?

All functions are performed in the same system and our customers use InvestPro to manage their fund administration across the entire process from start to finish. We have a range of tools that automate most processes.

The result is one automated system, fully integrated, a single source of truth for investment operations, which automatically handles regular processes. Exception-based intelligence is used to make sure the right data crosses the right desk, and everything else is taken care of automatically. You can reduce risk and grow your business without growing your team.

Implementation

We view the implementation of InvestPro in two ways:

  1. The speed and efficiency of the implementation project, and
  2. The stability of the product

Significant investment has been made by FRS to develop a lean and agile project methodology that gets clients up and running in as little as three to six months.

FRS has a large suite of automated tests that run nightly. These are run across each client’s database – all this is part of the ever-flowing continuous deployment process. Further, the testing also includes a nightly upgrade of the client database to the latest version of InvestPro. When we release an upgrade to our clients, it carries much less risk because of this. This continuous deployment is welcomed by our clients as it means fewer issues are experienced during upgrade.

In summary

While it’s easy to get caught up in day-to-day operations and make small adjustments to your processes to handle increasing fund numbers and investment activity, we’d encourage you to take a step back and review your entire operating model.

Identify the bottlenecks and dependencies and assess the risks of using spreadsheets and legacy technology. Upgrading to modern fund administration software, like InvestPro, is quick and easy when features such as automated testing and continuous deployment are built into the solution. Let the software do the heavy lifting, while you focus on growing your business.

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