The ties that bind: merging your investment reporting operations

Any asset manager that has grown its AuM rapidly will know that its investment reporting processes can come under severe strain during that period. If mergers and acquisitions are added to the melting pot the situation becomes even more complex, often with multiple reporting processes or applications in play in various geographic centers, serving different client types with different expectations in different locations. The outcome can be a high degree of duplicated effort, inefficiencies, and operational risk. Is there a better way, asks Andrew Sehulster, President of investment operations consultancy ICC, and Abbey Shasore, CEO of investment reporting provider Factbook?

Generally speaking, the reason why senior management make an acquisition is to compete better or achieve a different market positioning. With the best intentions, however, they may not necessarily know how to implement that acquisition in terms of combining processes operationally.

For example, from our experience the usual outcome of an asset management acquisition is that the investment reporting systems used by the acquiring firm remain and the other systems are discontinued. This is very much the default option but, if vendors and consultancies are involved early enough, they can usually help both parties understand that this is not always the best solution. Every so often the firm being acquired is operationally excellent and has the better reporting tools; on other occasions both systems have major limitations, and a third option is required.

Whether it’s reporting, accounting, performance measurement, front office, or anywhere in the investment lifecycle, the best approach is to look at the situation holistically and decide where the unified businesses can derive the best return on their technology investment in the long term. On occasion there are politics that prevent the right approach being taken and often consultancies or reporting vendors are brought in too late in the day to execute anything other than a tactical consolidation.

Wrong people, wrong decision

We have experienced situations where some of the right people that should be included in strategic decision-making aren’t present in the initial stages and are only brought into the room when it’s a fait accompli. This is one reason why the merging of investment reporting operations can take much longer than expected and not deliver the best results.

Sometimes the people making the decisions are middle management; they are rarely senior level. This means that on many occasions the people making the decisions are the people that are destined to execute the program. In such circumstances there may be a case for a ‘separation of powers’, whereby someone further up the management tree decides rather than departmental heads.

Cost of ownership analysis

Is there a case for having a cost of ownership analysis before an acquisition has occurred, in order to determine the best course of action before merging investment reporting operations? In our experience, sadly, this occurs far less than it should. The people making the decisions to buy are operating from a competitive landscape perspective, not necessarily from a profit perspective. In one sense this is a good thing, but unfortunately once the decision has been taken, the Chief Operating Officer and their subordinates often become responsible for trying to minimize cost when that was not the primary motive.

Analysis involving the comparative costs of the vendor solutions and the expense of the requisite operational staff would be highly beneficial in many instances, yet most asset managers will not wish to undertake such a deep evaluation in the midst of an acquisition. Due to time pressures firms rarely opt to execute a formal RFP process, potentially spending months defining requirements before inviting multiple vendors to bid.

Retain or redeploy?

A further question to consider is whether the investment reporting teams from both firms should be retained or some of the staff redeployed – perhaps in areas where they can add more value.

The goal, of course, is to have less resources involved in operational drudgery and more staff contributing to value-added areas. Barriers to this objective can include the politics at play (such as bonuses being paid to managers if they cut staff numbers) and resistance among some staff that do not wish to spend more time talking to clients and would prefer to be behind the scenes, involved in process automation.

Strategically, there’s definitely a case to be made that as a combined organization, the firm should seek to be more client-facing because the clients are likely to be concerned about the new entity. All too often we see the focus being on internal factors across the two businesses, as opposed to external factors such as client preferences. The maxim here is that if the new entity has more bandwidth to focus on client service, don’t wait until all the operational arrangements are complete before doing so.

The best way to consolidate

Is there a ‘best way’ to consolidate in the area of investment reporting – both in terms of people and systems? What consolidation should a firm seek and what should it avoid? Is there sometimes a case for not consolidating?

Obviously, every merger has its own, unique problems to overcome, but here are five general pointers that will increase your chances of success.

  1. Take advantage of the opportunity to listen. The fact is that clients may have a completely different perspective from the Head of Client Reporting on whether processes need to change and to some extent asset managers should let the clients drive the project. Firms can explain that as a result of this corporate event, there are going to be more resources and different tools that could potentially offer different reporting capabilities and ask clients what they prefer. Reveal some of the reporting capabilities that the other firm has and ask if this is functionality is something they would wish to integrate.This may result in a more substantial reporting project, but it will usually deliver happier clients that are far less worried about the new combined organization and how they are going to be serviced in the future.
  2. Devote time to the people. It’s actually more often the resources involved rather than the integration of the various systems in play that cause the most headaches. The tendency is that Heads of Operations are more inclined to look at the comparable systems rather than the people involved because it’s easier to tell a system what to do rather than tell people what to do. Yet staff are not necessarily resistant to change, they may simply be worried about their jobs.
  3. Don’t assume that the acquiring company’s systems are better. If reporting is the heart of your client servicing, then you shouldn’t consolidate if one group of clients has a completely different set of requirements, unless one system can handle both sets with excellence. There’s still plenty of room in the world for best-of-breed, even within an organization if that is what client requirements dictate. There’s no need to rush into a consolidation if the reporting requirements are drastically different and there shouldn’t be a desire for such a measure. There should be a desire for analysis as to whether there is an opportunity to streamline or improve.
  4. Be patient. The chances are that the two businesses will have very different outlooks and client bases, and therefore different demands on reporting as a client servicing tool. For example, if a largely institutional servicing firm acquired a predominantly retail servicing firm because it wanted to broaden its client base, the two client groups may well have completely different needs. Consider a transitional set of activities rather than a ‘big bang’ approach.
  5. Remember the importance of data. Even if the decision is taken to have a transitional period before any modifications are made, several sources of data are likely to change. You’ve still got to get that data to the reporting tool. One or both asset managers may have established data warehouses or a data hub that can be curated to feed the vendor solutions, but in our experience it is very rare for asset management firms to enable ‘plug and play’ with their data management solutions.


When merging investment reporting processes, as in any operational zone, there is no magic bullet as every case is different. It’s fair to say, however, that more analysis should be done as to the best long-term solution for the firms involved and their clients before attempting any consolidation.

Of course, for the larger firm the burden to deliver a return on investment from the acquisition can result in a rapid consolidation with little strategic input to the process. Although time pressure is an ever-present factor, it can sometimes be advantageous to operate as separate entities for a period and let the dust settle before making those key client-facing decisions.

With a more considered approach both companies will focus their attention on objective factors, to the long-term benefit of both companies and the clients themselves.

By Andrew Sehulster, President of investment operations consultancy ICC and Abbey Shasore, CEO of investment reporting provider Factbook


Read more Insights

Subscribe to Factbook News
Your name
Check here if you accept terms