Asset Managers: Reducing Risk with Smart Data
Risk: An innate characteristic of asset management that all firms must measure and mitigate. How this occurs and to what extent it can occur is a topic of interminable discussion among managers, analysts, and regulators alike, particularly since 2008. For example, the SEC’s amendments to rule 204-2 and Form ADV, among others, aim to provide additional transparency within the asset management space, requiring firms to disclose their AUM and leverage in separate accounts by asset class. This information will be made public, and the compliance date is October 1, 2017.
The SEC’s amendments strive to reduce a wealth advisor’s and, further downstream, investor’s exposure to potentially damaging investments, but that is only a portion of what risk’s full portrait looks like to asset managers and financial services firms in general. In other words, risk takes many forms, and managers are increasingly looking to data to mitigate any negative impacts those incarnations may have. In an article on changing the business model of fund administrators, Bill Salus, CEO at Paddock Consultancy, told FundFire:
Managers are facing mounting costs to build more creative strategies and comply with regulations and manage their infrastructure. It’s cutting into their margins and limiting their effectiveness—and their profitability and competitiveness. The trend is to manage that data in a way to have integrity across a platform and deliver across any functionality and capability you need it to do. For the modern administrator, that’s where the puck is going.
With an end goal of moving one set of data anywhere within an organization’s consolidated and cohesive tech stack, essentially eliminating workflow roadblocks and cross-functional disorganization and miscommunication, Salus sees the future of business operations as a necessarily comprehensive and fully integrated core of data infrastructure.
“Every time they have to use different software or take things off line, it increases risk and the time to turn around information for regulators or investors,” Salus said.
This push for greater internal collaboration and additional technological capabilities to reduce risk and strengthen a firm’s business model is well illustrated in a recent FIS survey; but while the need and want for artificially intelligent solutions is strong, it is also clear that firms are still trying to catch the tech adoption curve.
- Thirty-nine percent of managers did not believe their firm’s tech capabilities were strong enough to support growth
- Thirty-six percent said reducing operating costs is a benefit of greater IT spend; 35 percent said strengthening cyber security (i.e. reducing yet another form of risk)
- Thirty-four percent of firms said they are recruiting digital expertise and trying to encourage a more open culture to spark innovation
- Thirty-three percent of managers said legacy IT is the biggest obstacle to digital innovation
- Twenty-nine percent said their compliance systems are highly automated with 56 percent saying they will be in three years
So, how can a certain form of risk be reduced solely by the adoption of a holistically built, data-driven tech stack? Well, in terms of mitigating the repercussions of creating, maintaining, or distributing non-compliant marketing materials or quarterly reports, firms can leverage fully integrated sales enablement, marketing automation, and CRM platforms to run regular content audits, follow automated and transparent creation and approval processes, and distribute all collateral in a traceable and reportable manner.
Sound purely theoretical? In the coming weeks, Seismic will feature a client’s executed strategy for achieving the above goals. Stay tuned.