This post was first published by TSAM on Wednesday, 14th November.
Following on from The Summit for Asset Management (TSAM) earlier this year in New York, we caught up with Eric Bernstein, the President of Broadridge Asset Management Solutions and Steve Powell, the Senior Business Development Manager at StatPro to discover more about the recently published eGuide, examining the essentials of asset servicing – both today and tomorrow.
Meet the Leaders in The-Know
Eric Bernstein runs the global asset management division for Broadridge – a $12-billion-dollar market-cap company. Eric oversees everything from trading applications to back-office accounting systems. “I concentrate on the growth of our business in the global landscape – providing state-of-the-art tech services to our customers and prospect base,” Eric outlines. “Broadridge is a large company, comprising of five core components: investor communications, capital markets, wealth, investment management and an international division. The latter effectively acts as a transversal layer for the other four components.”
Steve Powell heads StatPro’s business development strategy, with more than 20 years of experience in analyzing data and driving multi-million-dollar deals in a highly competitive marketplace. “StatPro is a global provider of award winning portfolio analytics solutions to both asset managers and asset service providers,” Steve explains. “We provide performance, risk and compliance solutions for different sized enterprises, using our cloud-based scalable platform.”
Expectations and Innovations
Judging by the research presented in the Asset Servicing: Challenges & Opportunities in Middle Office Outsourcing eGuide, the volume and complexity of data is expected to continue growing at the same rate as it is now. “From StatPro’s perspective, we’ve seen this level of growth in terms of how complex the input data is. This has come from the portfolio all the way through to the complex output and the reporting data that people are expecting to see,” Steve clarifies. “We’ve seen more transparency and requirements to acknowledge what is going on within the portfolio. Another thing to understand is that the investment strategy has changed; our clients are investing in different ways now.”
Steve continues by highlighting the innovative new products that have generated more data, which coincides with the demand for the right kind of data. “There’s a real requirement for grinding the daily data, including the securities in the portfolio and risk across all the sites. These are important factors which are trending towards greater volumes and data complexity,” Steve details. “At StatPro, we don’t expect the rate to slow down because stakeholders and the end audience require more. Whether they’re regulators, sales teams, marketing teams, fund managers, or risk officers – they want to see data presented to them in the right way. At the same time, it’s a challenge for the industry to cope with how complex the data actually is.”
The President of Broadridge Asset Management Solutions amplifies how businesses are coping with the quality and quantity of the data. “What they struggle with is the normalization and homogenization of data because they’re getting data from disparate sources,” Eric adds. “Having the ability to centralize your data and use that centralized data hub as a means of reporting and communicating is paramount. Are firms prepared for that? Until now, they have gotten into the habit of throwing bodies at it. These bodies are making sure X, Y, and Z in system one is equal to X, Y, and Z in system two. Currently, there’s a huge amount of programmatic and human capital holding all the pieces together.”
With these struggles in mind, how prepared is the industry for the growth in data? “The volume of extractions, the volume of the interaction between users, and with the data is increasing at an incredible rate means there are two important areas to consider. Firstly, because the landscape is changing, asset managers need to be nimbler,” Eric warns. “Giving them robust reporting solutions that allows them to extract the information and have the data to support that is becoming increasingly important. Secondly, the medium in which asset managers are reporting is crucial. In my opinion, the days of physical reports are gone! Therefore, having a robust Business Intelligence (BI) system, which allows people to self-serve and implement a cohesive data model, is critical.”
Adapting to a “Tsunami of Data”
One of the major concerns is what the impact will be on those organizations that don’t adapt at a quick enough pace or keep up with the growth of the data in which they are dealing with. “To echo Eric’s point about businesses throwing bodies at their problems – there is a lot of legacy technology out there, which is why this data exists in lots of separate silos,” Steve emphasizes. “In terms of the impact on organizations that don’t adapt to better ways of managing their data – they risk an increase in inefficiency and costs to running their business. It also reduces how the organization can innovate its output.”
The advanced ways in which businesses manage their data is a key part of the adaptation process too. “It’s a tsunami of data coming their way. The current process of dealing with data is inefficient, as it involves lots of people who haven’t been trained – plus the tech they’re using is typically outdated,” Steve admits. “A transformation is required to get the most out of the data they have access to and to stay competitive in an incredibly competitive market. We’ve seen a lot of consolidation in the market. It’s something that really needs to be looked at quite seriously.”
The President of Broadridge Asset Management Solutions concurs with the transformation required within the asset management industry. “When we’re entering into discussions with both clients and industry experts, there’s a grand-scale debate surrounding the future,” Eric states. “Regarding the shifts in asset servicing, there is a prevalent topic that points to how the industry can transform: how to get more for less. And you need to have the right technology to achieve this. As a result, a large amount of bodies won’t be necessary in the future. Technology will be critical for the asset servicer to offer more for less to their end client.”
The increase in data has naturally led to a demand for improved data management – which has been at the core of the challenges faced by asset managers today. “We’re seeing an overwhelming desire to have centralized data hubs. To spearhead this from a programmatic and technology perspective, we’re using robotic process automation and machine learning,” Eric states. “This will take that data and handle most low-level exceptions, as well as bringing out bigger exceptions too. For example, whittling down 30,000 exceptions to 100 will have a meaningful impact on time and costs. The technology play is not just the end consumption – it’s about all the pieces that bring raw, structured and unstructured data to consumption.”
The ‘I’ in ‘AI’
The intelligent functionality of these systems is something that has been developed over time and honed by providers like StatPro and Broadridge Data Management. “Speaking as a technology provider to this marketplace, and firms such as Broadridge, it’s very much about bringing some intelligence into these platforms now. We built a performance measurement engine from scratch as a native cloud application. It allowed us to really think about that business process automation and some intelligence within the system,” Steve describes. “For example, in the world of performance measurement, there’s an incredible amount of daily transactions – data comes in which you then produce a weight and return. There are many systems and people involved that run their data quality controls on that source data.”
Senior Business Development Manager at StatPro speaks of the benefits of implementing technology that can identify and resolve issues, which is a valuable way to maintain the flow of efficiency. “Something that can also happen is that a performance system can calculate a weight and return that is mathematically correct – but is actually wrong. Any performance measure would spot that it’s wrong,” Steve elucidates. “An example of when technology can help by having some intelligence to realize what’s gone wrong, such as a cash-flow timing issue, is when the system is able to automatically correct that issue and log the change in an audit log. This also shows how technology can reduce 30,000 exceptions down to something more manageable like 100. This type of technology is very beneficial and allows businesses to repurpose those resources to more valuable tasks. It’s all about how we can get people to do the value-added parts of their role and not the boring elements, such as data management.”
Despite the advantages, asset managers are looking for technology platforms to service the increasing client demands, but they’re conscious of pressure on their margins. This means the selection process to partner with the right company (for outsourcing or using the right technology platform) takes priority. “On the data management side, asset managers have a range of choices. A lot of them have legacy technology in place, which has been there for a long time – maybe in the back and middle office,” Steve explains. “They can look to bring in new technology, uniting the middle and front office with a new FinTech partner. Firms can opt for an all singing, all dancing platform – but this could take years and millions of dollars to implement. If this is not a viable solution, they can outsource the issue itself. Each choice has its pros and cons.”
One of the burning questions is how will the next generation of outsourcing affect managers? “They’ll start to really focus on the core and how to manage money for their clients, thereby adding value to the process. Managing mountains of data and other things is not a part of the ‘cool tasks’,” Steve declares. “There are technology providers like StatPro who build the technology to do this. By outsourcing, you can effectively reach across these processes. That’s part of the service – something that we’re seeing a lot more of moving forward.”
Mind Your Platforms and Processes
Another important point is to identify the different processes, systems, and costs required to create a turnkey solution. “We’re challenging asset management firms to not just look at the explicit cost of doing these things. When I’m speaking to them about this topic, it’s like saying the cost of making a meal at your house is just the groceries. It’s not just the groceries; it’s all the equipment too – all the daily things that you’re not thinking about, like the gas you need to travel to and from the store by car!” Eric muses. “Today, these organizations may have legacy systems in place, with data stored in up to 10 different systems. However, co-mingling this data would create a risk. As Steve said, bringing the front and back office together will form a centralized place to access the data, so everyone is on the same page. Ultimately, streamlining this information will yield a better return and reduce the overall cost. We’re looking at it from an explicit cost-value creation perspective. Organizations do this for a living. What we do is provide a turnkey solution for asset managers to just manage money.”
From the “Asset Servicing: Challenges & Opportunities in Middle Office Outsourcing” eGuide, we can glean that the data is often stored across multiple platforms in a siloed fashion. With platforms performing the same functions, there is naturally a lot of repetition going on. This denotes challenges for asset managers in the initial stages of changing their business structure. “There are lots of ways to solve this problem. It can be seen as such a large problem, but it is about building the right partnerships and to understand where technology can come into play,” Steve explains. “You need to be asking yourself: what are you trying to achieve; what service do you require; which services need to be kept in-house and which services could be outsourced? That’s where providers like Broadridge excel.”
The Existential Why?
It’s all about asking asset managers the right kind of questions – the existential whys. “They all know what they do, and they know how they do it. But if you’re just going to solve one particular problem because it’s the way it’s always done, then you might not be actually achieving what you really want,” Steve affirms. “You go away and solve that problem, but you’re not fundamentally addressing the true needs of the asset manager. Ask why: why do we exist; why are we here; what is our purpose? This allows you to understand the requirements and how things used to be done – then you can resolve your problems in a different way. We want to be more efficient and set you off on the right path to the solution.”
We talk about technology and outsourcing to help improve the efficiency of internal operations – but which areas will have the most impact on businesses seeking to provide greater value externally to their customers? “We’re trying to get customers to focus on their core competencies. Whether it’s through an asset servicer or through an outsource provider – everything that happens post-trade can be outsourced,” Eric confirms. “What we’re trying to do is provide them with outputs, such as performance reporting, risk reporting, reconciliation reporting, or exception management – providing the tools to help firms continue to manage their money. The view in the industry right now is inefficiency: how do we gain efficiencies, reduce costs, and reap the most value out of our dollars?”
Eric elaborates further by expressing how the back office will become a valued, sought-after commodity in the near future. “Everything else is going into an outsourcing model, whether it’s through a third-party service provider or through a managed service provider. To some degree, the end state is a commoditization of those functions. If you listen to what economists at major banks believe – which I’ve been doing a lot recently – they strongly believe that the back office will become a commodity. None of the providers and asset management firms will do it themselves anymore.”
So, how will the relationship between outsourcing organizations and the back office evolve over the next three to five years?“I think it’s happening now. I think the asset management firms are following suit with capital market firms and settlement firms,” Eric notes. “I look at my peers in capital markets here at Broadridge and we clear 60% to 70% of trades in North America. We do that because firms have decided to outsource that function, and I think that’s already starting to happen in the asset management sector.”
Client vs. Product
The client focus vs. product focus is a visceral element of the innovative changes in asset management. “One of the industry criticisms is that asset management is not as customer-focused as it should be. Instead, it’s very product-focused,” Steve addresses. “Whereas our focus is on the portfolio, which is not necessarily focused on the client. This transition or ‘resetting’ that’s happening during the tech and outsourcing wave re-establishes a middle ground between these functions. This allows us to manage portfolios and really focus on the clients – to become more client-centric, in terms of the information that is provided to the client and how they react to this information.”
This leads onto how providing true self-service capabilities and portals for clients (giving them access to the information they require in a shorter turnaround) is something that has become a competitive corner in the market. “It’s allowed the asset management industry to innovate, catch up, and enhance their client focus,” Steve advises. “However, there’s a big fear in the industry that the large technology businesses, such as Amazon and Apple, could take the market share in private wealth if they started up their own in-house financial services division. If they were to step up their game, in terms of the service level they provide, it could diminish any potential threat from new entrants into the market.”
The “Right Way Forward”
“Right now, I think we need early adopters who vocally pronounce that, yes, this is the right way forward. We’re starting to see some very creative front movers who are open to doing this,” Eric cites. “Once that spark catches fire, a lot of firms will follow and build up the momentum. Over the next three years, you’ll see a significant shift in firms, including large asset management firms, that are using heavy-duty, third-party accounting systems.”
“I agree that it’s happening now,” Steve states. “I also think a good question to ask is, if you’re setting up an asset management firm today, what would you do? You wouldn’t have a giant accounting system and back office for processing – you just wouldn’t do it. Like how the cloud is utilized for IT companies, you wouldn’t build your own data center. Not anymore. You don’t even need physical servers. You can just conceive these as services.”
These services are available now. It is happening.
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