Culture Change in Fund Administration

Date: February 21, 2017

Red Pen Financial ReportIt’s time for the fund administration culture to change.

I remember starting my first job as a fund accountant at State Street in July of 1994 and on my desk was a mainframe computer, a PC that I shared with others in the group, and tons of green ledger paper. 

In those days, everyone in the industry was content to do the core accounting on a mainframe and then to do many of the other tasks (amortization schedules, income roll forwards, share roll forwards, etc.) offline in order to validate that the accounting system was in fact calculating things correctly. Wow, has the world changed in the last 20+ years.

Today, in the rear view mirror (perhaps from our self-driven car) we can see the major industry initiatives and investments that have eliminated so much manual work in the fund accounting world–things such as straight-through-processing for transactions, automated nightly pricing, and probably the most important and impactful, exception-based processing intelligence tools. Today, there are very few validation checks that are done in the fund accounting world that aren’t automated in the accounting system with exceptions called out to the end users’ attention. While there is certainly work to be done in the custody and accounting world, their culture has adapted with the technology and we have a more optimized and efficient environment compared to that of my early days in the industry.

Fast forward 20 years. In 2014 I was years into leading large fund administration groups, yet still operating like it was the 90s. Within financial reporting, I oversaw groups of people who produced financial statements in a fairly automated fashion, but were then satisfied with checking draft after draft with pen and paper. Looking in the rear view mirror again, we can see that there have been a few linear projects and investments across the industry to help automate end-to-end financial statement processes, but they pale in comparison to the changes that we made in fund accounting. Combine the lack of sophisticated exception-based technology tools with a seeming lack of urgency, and unfortunately, we are where we are today.

Now, here we are in 2017 and the need for more sophistication in fund reporting is higher than ever.  With the onslaught of regulatory reporting requirements across the globe and the need to get financial statements completed faster and cheaper comes a pressure on our industry that is unequalled. As a result, the industry is finally looking to not only enhance the automated production of financial statements, but to also automate their review. Building the technology is not easy, but is certainly within our collective grasp and has already begun. Technology, though, is only part of the path to success and much-needed change.

The most difficult part of making this significant and impactful change to the business process is changing the culture to adopt new and more efficient technology-centric review tools. Only with full adoption will we see the benefits of these tremendous changes–changes that innovated the fund accounting world in the 1990s and now have the same potential to impact fund administration.

Executives have been trying for years to reduce the operational costs associated with financial statements and other fund reports and just now are realizing that the costliest component of these processes is the review process. Perhaps because we have finally reached a point where end-to-end production of financial statements is commoditized, we can finally begin to focus on this. Change is needed and the time is now. There has never been more pressure to execute on this and to change the culture of the red pen.

To learn more about 13f-2 watch our webinar replay Part 1: Unpacking the SEC's New Disclosure Rules for Shareholders
Join us for Part 2: Operationalizing the SEC's New Disclosure Rules, for Shareholders on December 12.