Is a best-of-breed reporting system within your reach?

An Investment reporting approach that addresses concerns related to throughput and standardisation, reduces risks associated with reporting cycles and assists rather than obstructs during tier transition is important – and within reach of all firms, writes Abbey Shasore, CEO, Factbook.

From time to time I find myself in front of a small asset management firm that is considering a best-of-breed investment reporting solution.

Usually the key driver for such firms (with, say, AuM of under £10 billion) dipping their toes in the water is that they are beginning to scale up their investment management operations and are becoming increasingly aware of the inefficiencies (and risks) of their long-established inhouse reporting approach. They realise that the manually intensive processes that they recognised but tolerated when their business was small are now threatening to come apart at the seams during the key periods of the monthly or quarterly reporting cycles.

Lack of standardisation

Often the explanation for these labour-intensive processes is the sheer volume of highly bespoke reports that are being produced for clients. This lack of standardisation is perceived to be ‘vital’ (though no one has any hard evidence of this) and it is the chief cause of excessive man hours spent preparing reports.

Although the need for change in their operating model is therefore evident, there is often an unwillingness to commit to buying. The reasoning I sometimes hear is along the lines of: “…we are still only a small asset manager and we are not sure that a best-of-breed solution like this can be justified.” Or “…we don’t know if we will get the full benefit out of such a system – with all the bells and whistles”. Or “…when we are up there with the household names of the investment world, that will be the time for a solution like this – when we can get a substantial return on our investment. Until then, maybe we will just carry on with our current approach.”

Occasionally, the logic is more along the lines of: ‘We know that we need to scale up our reporting, but it will be cheaper for us to just get a fresh graduate to do the extra work.’ That calculation is nearly always flawed. It never includes the induction time, the management time or the (usually very complicated) system training required in order for that graduate to become productive.


Keyman risk

Nor does it account for the fact that such a ‘scaling operation’ still leaves the firm in the same realm of risky, manual processes, with a need to check the aforementioned graduate’s work more so than ever. And what happens when the graduate is unwell, or on holiday, or simply leaves the firm for his first promotion – as those at the start of their careers tend to do more readily? This form of keyman risk is seldom if ever acknowledged; the approach necessarily fails to address it.

The truth is that it will be far easier to change a firm’s operating model when it is still under £10 billion AuM than when it is closer to the £500 billion mark and has a team of 25 graduates performing the same manual process for dozens more clients. The eradication of many years’ more bespoke coding (and spreadsheets with macros that only a handful of staff actually understand) in favour of a vendor solution will cost the firm far more and raise the stakes in terms of project risk considerably. It will be a much bigger, more time-consuming IT project that the finance department  will eye with a far greater degree of caution.

This is a conundrum that most small buy-side firms have to wrestle with, whether they are looking at client reporting or any other type of middle office solution: is this the right time, can we justify the cost and how would we change our operating model?


Tier transition

The ‘tier transition’ concept – where an asset manager starts to grow rapidly but is having trouble visualising how best to operationalise that growth – has vexed many an asset management firm. Typical questions I hear include: what skillsets would we need; how would we structure the department; should we have separate reporting teams for factsheets/client reporting/regulatory reporting; what can we outsource and what do we retain in-house?

There is a plethora of issues, but the basic principle is that the firm needs to know how it should change its operations in order to grow most efficiently. Such a change in operations should necessarily involve looking at factors beyond cost.

For example, I would argue that smaller asset managers should consider the increasing risk of scaling up an essentially labour-intensive process. What is the keyman risk just now and how will that change? Firms should contemplate whether their current process will eventually reach breaking point – and the impact that might have on client retention.

Different guises

Risk in the area of investment reporting is not only pervasive but it also manifests in a number of different guises. First of all, risk is inherent in all manual processes. This form of risk is hard to measure and hard to mitigate.

There is also the reputational risk to contemplate: the risk of making a mistake and news of that error reaching the market. Again, this kind of risk is not readily quantifiable but its impact can be immense.

Finally, there is the risk of fines and compensation being imposed by the regulator. Clearly, whilst the likelihood of such a breach occurring is difficult to ascertain, the pecuniary cost comes straight out of the bottom line.

Another operational consideration is opportunity cost. How much time would an automated system save for the Client Reporting team – time that could otherwise be spent on value-added services which clients may appreciate more?


To conclude, there are many factors that at first glance may convince a small investment management firm that it probably can’t justify a move to a best-of-breed reporting system, replacing the generally labour-intensive process in situ. By asking the right questions, however, the seemingly unattainable (or unjustifiable) may well be within reach.

Abbey Shasore, CEO, Factbook


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