Read the article and learn about:
- Why standardization of the investment platform and processes is vital
- How standardization supports the scale and scope of global organizations by achieving economies of scale
- Six business practices throughout the overall value chain that benefit from standardization
Senior Product Marketing Manager, SimCorp
My guest speaker, Gary Logan, Associate Partner and Operational Efficiency Lead at EY Wealth and Asset Management, UK talked first about the roots and causes of the industry trend towards standardization. He argued that the good times have continued in recent years with demand for investment products continuing to create positive net new asset flows. In addition, the rising equity markets have increased AUM by 10% p.a. over the last five years and operating margins remain robust. Moreover, there was a significant growth of passive funds (c.20%) and active funds moved into positive flows in 2017 creating revenue growth.
However, these have masked underlying headwinds with AUM growth slowing due to asset owners increasingly managing more assets themselves; sovereign wealth funds continuing to withdraw assets; defined benefits pension assets being drawn down and not replaced at the same pace; and finally, poor savings habits among the younger generations. He concluded by explaining that with industry revenues slowing and operating margins under pressure, operational efficiency is key for divergence between winners and losers. This was supported with the poll conducted among participants of the session, where 59% of SimCorp clients in the audience pointed to the growing cost of regulation as being their primary competitive concern for the future.
At SimCorp, we believe that decreasing operational complexity through consolidation and standardization of the investment platform and processes can support the scale and scope of global organizations by achieving economies of scale and thus reducing costs and improving profitability. Let us focus on six business practices throughout the overall value chain:
1. Process automation from front to back office
It starts with a front office environment based on an integrated IBOR with one central repository of real-time data. Point solutions with inefficient integration create multiple operational challenges when transferring data from one system to another and are costly to maintain in the long run. In recent years, we have seen trade confirmation, settlement matching and payments becoming almost completely automated via the adoption of industry-wide communication standards. Today, we see corporate actions handling being another area where automation is improving but still not enough. When asked how they would rate their current STP level for corporate actions, only 13% of the session participants evaluated their current level to ‘Good and High’.
How would you rate your current STP level for corporate actions?
By moving to a more automated flow with all information gathered in one consolidated overview, front office and back office staff can act directly on corporate actions, moving away from the heavy burden of highly manual and cumbersome processes involving web portals, print screen views, double-checking data, etc. It was clear from the audience that the top two objectives of was to ‘reduce of operational risk’ (37%) and ensure ‘staff reallocation to more value-added activities’ (32%). Increasing automation and overall front-to-back STP rate will enable these objectives together with improving efficiency.