Asset Servicers looking to uniquely position their outsourced Fund Accounting (FA) offering from the market are not only addressing common pain points and challenges but are also looking beyond Fund Accounting as a service into a value-add client experience commodity. In the future, the client – i.e oversight team outsourcing their FA function – experience will be transformed into a digital-first experience which will promote easier oversight, Net Asset Value (NAV) insights, and data-driven trends. NAV Oversight is moving away from email and macro-based tools to either built-in dashboards from the Third Party Administrator (TPA) with self-service and drill-down capabilities, or similar in-house built tools / dashboards provided by the TPA. For TPAs themselves, it is the overhaul of legacy systems that will underpin significant efficiency savings and operational improvements.
Where are we now? Frustrations with legacy systems and technology are commonplace
Consistently, we see the same three themes underpinning Asset Manager frustrations with the current outsourced Fund Accounting market offering:
Onboarding Pains
Smooth and successful transitions are rarer than they should be in the marketplace; long lead times to customize legacy operating models ahead of technology builds, delayed testing phases driven by these tactical builds and operations teams rarely being external facing to the client being onboarded are all contributing factors to delayed and cost spiraling onboarding transition programs
Manual Process and Legacy Systems are Commonplace in BAU
Disconnects between onboarding teams and operations teams during live handover periods consistently lead to failed Service Level Agreements (SLAs) post-live. This, alongside NAV calculation systems that are antiquated and overdue technology upgrades to support increases pressure on operations teams still operating in a manual world – excel macro calculations and ‘in-person’ 4-eye checks still persist in parts of the market
Is the Service Experience for Oversight Teams Really that Good?
Reports delivered to oversight teams, downstream recipients and 3rd parties continue to be delivered through often less than adequate range of delivery mechanisms such as email and ad-hoc Secure File Transfer Protocol (SFTP). Self-service portals are the shared market aim but are not yet commonplace for all reports and data sets. Coupled with this, data inaccuracies persist, driven by multiple data hops between front and back-office leading to inconsistencies and, subsequently, increased queries for oversight teams. With this, sample testing and spot checks for oversight teams increases workload, both of which are cumbersome and time consuming
Where next in the immediate future? Time to put thought into action
Value Add Services
Whilst firms choosing to outsource their FA almost always simply want a cheap reliable service, the differentiator between TPAs will be what small margins of value add they can provide. The additional services an FA can bolt onto the Accounting Book of Record (ABOR) could include, say, client reporting, market disclosures and regulatory reporting. Sending data efficiently to other 3rd party providers or producing the market and client outputs themselves is a growth area across the market for TPAs
Real Time NAV Positions
NAV production cycles remain largely unchanged since FA was first outsourced decades ago, despite the advancement in technology in other services. As firms invest in heightened automation, real time integration of Custody holdings and NAV positions within self-service login portals are set to become an ambition. This, combined with more detailed NAV impact analysis will provide deep-dives into NAV fluctuations to ensure enhanced pricing accuracy, thus reducing oversight overheads
Highly Digitized Oversight Interfaces
Advanced digital interfaces and applications for oversight teams, akin to banking apps on smartphones are near the top of the wish list for oversight teams globally. A single online view for reports and accounting records (live and historic) will allow for a move away from email distributions and SFTP landings. Successful development will be a quick win for supporting technology vendors looking to standout in the market, and enable enhanced propositions for Asset Servicers
Where to in the longer term? What was once considered blue sky thinking looks set to become reality
Advancement of technology runs in direct synergy with the advance of future state FA capabilities. The three areas with the broadest and most keenly felt impact are outlined below:
Technology that Supports Complexity and Volume
TPAs that are able to invest in technology infrastructure that is robust and developed enough to handle expanding transaction volumes across varied fund types and asset classes, coupled with removing human dependency for jurisdiction specific complexities, will stand out from the crowd. Continued investment in Machine Learning (ML) and Robotics Process Automation (RPA) will continue to reduce reliance on local SME knowledge and hiring inhibitions – both of which continue to be growth blockers for TPAs looking to expand their books
Artificial Intelligence (AI)
Investment in AI technology, as it becomes available, will pay dividends for Asset Servicers looking to directly negate some of the key client issues that persist today. Above all, AI is set to impact oversight team experiences through, for example, the advancement chatbot capabilities for real-time queries, bespoke reporting available for customization on request and AI suggested NAV processing based on investor behavior
Advanced Data Integration
Accurate, real time, accounting data will be available across the front to back operating model, including for any 3rd parties. Three ways in which this will be made possible include:
- Accounting trade automation with real-time dedicated transaction delivery that delivers the highest possible STP rates
- TA-FA data sharing will be seamless to allow for accurate notification of investor activity and cash forecasting
- Funds will be based on Distributed Ledger and Blockchain technology which will allow for immediate front to back data flows
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About the Authors
Alexander Bowie
Director
Alexander is a Director at Alpha and has over a decade of experience working on outsourcing transformation programs across the front, middle and back office. During this time, he has led programs across the transition lifecycle from strategic operating model design through provider selection and transition implementation.
Ed Collins
Consultant
Ed is a Consultant at Alpha and has experience working on a variety of work across the industry for both Asset Managers and Asset Servicers. His experience ranges from strategy to execution roles including vendor selection and due diligence, operating model designs, and TPA onboarding and implementation programs.