One small error in a formula or misplaced decimal point can be devastating. Just ask Tibco Software Inc. who discovered that its stockholders received about $100 million less than planned (in an approximately $4 billion sale to Vista Equity Group) because of a spreadsheet error which caused a miscalculation.
So, then why has the asset management industry continued to cling to their columns, formulas and precious macros?
Sure, many leading firms have embraced technology and are reaping the benefits. But much of the industry remains in spreadsheet hell. The need for efficiency certainly hasn’t been imperative enough to prompt change. Nor has the need for increased control, which has been masked by adding layer upon layer of manual checks and balances.
It’s not that the need for change hasn’t received lip service. For the past five years, Confluence has conducted three separate industry surveys to assess sentiments over key industry issues– the most recent in the fall of 2014. With each survey, six out of 10 respondents cited replacing manual processes with automated technology as their top priority.
Seems like the movie Groundhog Day – reliving the same scenario with the same results again, and again and again. Year after year, respondents indicate that they plan to eliminate spreadsheets and replace them with automation, yet never quite execute on the aspiration.
But with our most recent survey, we’re convinced that replacing manual processes with automated technology really is the top priority this time and that the industry is finally serious about making a change.
Why now, but not before? Urgency, that’s why. That urgency is being driven by escalating regulatory and client demand for a daunting level of data-driven transparency which simply can’t be met with spreadsheets. Our survey found that replacing manual processes with automated technology ranked first as the most important goal in the back-office while managing the increased demand for regulatory and investor reporting ranked second.
The active regulatory environment of the last few years has led to a flood of new data and technology solutions for asset managers as they have had to adopt and manage new requirements for the business. Regulatory change has been so drastic, according to an Ernst & Young global survey which cited regulatory compliance as the top industry concern, that firms are being forced to adopt a more strategic approach to managing data and technology in order to grow the business.
And more is to come. As reported by Ignites in December, SEC Commission chairwoman Mary Jo White has said the commission is doing a comprehensive review of the mutual fund industry and that the SEC must reform the ’40 Act in 2015 and that one of the three key areas for rule-making is enhancing data reporting.
Our Confluence poll also revealed a related and paramount sentiment that concern over errors has nearly tripled since 2010 when just 7 percent said their top concern was reporting errors – rising to 19 percent. Overall, 94% said they are concerned (62% say they are extremely or very concerned) that manual processes might affect their ability to control errors in the back-office, compared to 85% in 2010.
So has the time finally come to eradicate spreadsheets in the back-office in favor of transparency and control? Consider this sampling of painstaking reasons why: Form PF, Form CPO-PQR, AIFMD, Solvency II, Form N-MFP and many others like the above mentioned enhanced fund reporting requirements looming on the regulatory horizon.