Originally published 7/31/14 in WallStreet & Technology
One of the toughest jobs we face as a technology solutions provider is predicting future needs of the industry as it evolves and becomes more technologically sophisticated. At Confluence, we believe the fund industry back office of tomorrow will rely on a far greater degree of workflow automation on par with the level of automation we see in the front office today. We’ve seen our clients increasingly looking to leverage systems that automate workflows that have been traditionally handled manually – something that will undoubtedly trigger a wave of innovation and revolutionize the back office as we know it.
Two driving factors are behind this change. First is the increased scrutiny fund managers are under and the resulting need to ensure both investors and regulators have a high degree of data integrity and accessibility in the back office. Administrators and asset managers will need to bring their A-games to the table if they are serious about addressing the lack of automation in the industry. We predict more scrutiny in the fund expense side of the business in the future, with automation playing a key role in managers being able ensure that data is readily accessible and expenses are distributed accurately and fairly across share classes.
The second, and longer-term, factor is a desire to achieve some of the operational efficiencies in the back office that fund managers have achieved in the front office through the use of sophisticated technology. Automation plays a large role in this. For instance, the ability to leverage a living document concept will help managers save time and resources while helping them ensure their fact sheets, KIIDs, prospectuses and financial statements are aligned and fit for purpose before they are distributed globally.
This “back office revolution” won’t happen, though, without an investment in this long-overlooked area of the fund industry. These strides forward will be especially necessary in light of recent and impending regulations. I cannot stress enough the importance of investing in a regulatory data platform that will help mitigate the cumulative cost of regulation. There is a need to invest in solutions now: The business and revenue opportunity that the era of “big data” promises will not be realized without a deliberate and diligent management strategy to turn tactical solutions into more long-term strategic, data-driven initiatives.
It seems the common view among fund managers is that the return on investments that make the back office operate more efficiently will be felt in two ways: operational costs coming down over time, and new opportunities to win capital allocation by being able to demonstrate to investors a smarter, more robust operating model. That second benefit could contribute meaningfully to fund growth in the new market environment, but it will be difficult to achieve this win if fund managers don’t embrace the potential that operational automation promises.