Not all reconciliation is created equal

Three business people discuss graphs on screen in meeting room

Outsourcing technology has increased in popularity across the investment management community. Over the past few years, however, we’ve seen many of our clients looking to gain efficiency by outsourcing some of their back-office activity as well.

As is the case in many industries, implementing change, especially the kind that means letting go of certain workflows that have been in place for years, can be difficult. Some activities, though, seem particularly ripe for change. One of the core workflows where we have seen increasing interest in making a change is custodial reconciliation. In fact, over the last two years, we have conducted webinar polls on the topic, and in each case reconciliation was the number one back-office workflow firms were interested in outsourcing.

This is not surprising. Reconciliation is often viewed as repetitive busy work. But if it’s not done efficiently, it could have significant negative impacts on the business as a whole, ranging from delays in trading or reporting to an overall lack of confidence in the accuracy of data across your organization.

Many of our clients have complex operational environments, with a slew of data coming into their systems before any reconciliation even begins to take place. Whether it’s market data, trade data, custodial data or data from various systems, it can be daunting for staff and creates a lot of work before the true reconciliation issues can even be identified.

If you’re thinking about outsourcing, any provider you choose to work with should be able to deliver on three interrelated components to successful reconciliation:

1)     Identification: What tools does the provider use to identify your breaks? Any provider should have access to a robust data network that can easily aggregate custodial and market data on your behalf. This data should not be limited just to positions, but should also include transactions and cost basis. The more your vendor can aggregate electronically, the better they will be at identifying when the transactional and reference data in your system does not match that of your counterparties.

2)     Research: In many cases, there will be issues that your service provider should be able to resolve without involving your team – the more, the better. Having access to your trade data, a variety of sources of market data and, in certain cases, read-only access to your custodian back office will help your service provider resolve issues before they even get to your team. Many service providers will simply translate data and then deliver the exceptions to your team. This adds minimal value, since simply translating data is work that can be automated – why would you pay for that? It is important to understand exactly the kind of work that your service provider will be doing beyond simply managing workflow that could easily be automated.

3)     Prioritization: Finally, this is where your firm will begin to see immediate results of a collaborative outsourcing relationship that is built on top tier identification and research processes. A successful service will deliver to your operations team true breaks every morning before the start of trading. Your team’s first interaction will be resolving the issues that can be most problematic for upstream systems and users at the firm. As a result, these issues can be resolved more efficiently. Your team should not have to worry about missing data or that they are spending time resolving an issue, such as pending trades, that will likely resolve itself after settlement date.

At SS&C Advent, our goal with every relationship is to get your firm’s operations staff starting each day working with true exceptions. With Advent Outsourcing Services (AOS), we provide a service that is in line with these three reconciliation principles. As a result, we have been successful in collaborating on reconciliation workflows for our clients ranging from under $1 billion to $30 billion in AUM.

To see what else you need to consider when thinking about outsourcing, check out our white paper.

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Posted in Technology, Traditional and Alternative Asset Management, Wealth Management and Financial Planning

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