1 / 64

Technology Challenges of Supporting Managed Accounts

Technology Challenges of Supporting Managed Accounts. Vincent Manning Venture Financial Systems Group, LTD. Why Are We Here?. Separately managed accounts (SMA) held $399 billion in assets at the end of 2002 (Source: The Money Management Institute).

margie
Download Presentation

Technology Challenges of Supporting Managed Accounts

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Technology Challenges of Supporting Managed Accounts Vincent Manning Venture Financial Systems Group, LTD. 2003 NICSA Technology Forum

  2. Why Are We Here? • Separately managed accounts (SMA) held $399 billion in assets at the end of 2002 (Source: The Money Management Institute). • SMA assets are expected to increase to $1 trillion by 2006 and $2 trillion by 2011 (Source: Financial Research Corp – “FRC”). • More investors will turn to managed accounts over the next five years, cutting the ratio of mutual funds to managed accounts in half FRC). 2003 NICSA Technology Forum

  3. Why Are We Here? • Growth in SMAs driven by the attractiveness of individually customized, professionally managed products. • Tax efficient • Decreased investment minimums 2003 NICSA Technology Forum

  4. Why Are We Here? • Current technical and operational landscape is void of industry standards. • Analogous to mutual fund industry in the early 1980s. • Until recently, industry power has been concentrated in the hands of a few sponsors and systems providers. 2003 NICSA Technology Forum

  5. Agenda • Introductions • Industry Primer • Managed Asset Market Place • In-House Servicing • Outsourcing as an Option • Developing a Multi-Manager Strategy • Q&A 2003 NICSA Technology Forum

  6. Panelists Roger Gregory DST International Chris Flynn MFS Investment Management Dave Reinhart The Bank of New York Separate Account Services Donald Foberg Phoenix Investment Partners 2003 NICSA Technology Forum

  7. The Players • Wirehouses/Sponsors • Top 5 control over 70% of the assets(FRC) • Investment Managers • Top 10 control 35% of AUM(FRC). • Technology Platform • CheckFree APL, IDS, Advent, DST, FIN • Customization Tools • LifeHarbor, SoftPak, Upstream, Parametric, Placemark, Tamarac, Smartleaf, BTA • Outsource Providers • BONY, Mellon, State Street 2003 NICSA Technology Forum

  8. Program #5 Program #1 Program #6 Program #2 Program #7 Program #3 Program #8 Program #4 The Problem: Technical and Operationally Inefficient Marketplace I N T E R F A C E Model A Model B Operations Team Portfolio Manager Model C Logon Logon Model D Logon Logon Source: Cerulli Associates 2003 NICSA Technology Forum

  9. IM IM IM IM IM Sponsor Sponsor Sponsor Sponsor Sponsor Sponsor Sponsor FC FC FC FC FC FCC FC FC FC FC C = Custodian C C C C C Fax E-mail Proprietary Link The Problem: Technical and Operationally Inefficient Marketplace 2003 NICSA Technology Forum

  10. The Problem: Technical and Operationally Inefficient Marketplace • Lack of standardization among sponsor systems presents significant operational hurdles and technical challenges. • Majority of major sponsors maintain proprietary portfolio accounting and trading systems. • No standard technology protocols or workflow processes across sponsor systems making it difficult to standardize operations across multiple sponsors. • Operational complexity increases dramatically as the number of sponsor connections increases. 2003 NICSA Technology Forum

  11. The Problem:Technical and Operationally Inefficient Marketplace • Operational segmentation in the marketplace due to disparate applications will continue to place tremendous strains on operations. 2003 NICSA Technology Forum

  12. Potential Solution: Industry Utility • In a November 2002 white paper, The Money Management Institute (MMI) called for the creation of an industry utility to transmit critical communications between industry participants. 2003 NICSA Technology Forum

  13. The Result: Technical and Operationally Efficient Marketplace Industry Standards 2003 NICSA Technology Forum

  14. The Reality: We Are Not There Yet • The Money Management Institute is working to bring standards to the industry. • DTCC is working to bring standards to new account openings process. • New market participants offer expanded solutions along with pressure to standardize communications. 2003 NICSA Technology Forum

  15. Ideal Operating System • Communications • Seamless, secure electronic connectivity between all parties. • Standardized electronic communications for all routine operational tasks. • Operations • Real time transaction fulfillment. • Easy to use and train. Source: The Money Management Institute 2003 NICSA Technology Forum

  16. Ideal Operating System • Infrastructure • Internet-like disaster survivability. • Exponential scalability. • Open architecture. • Low cost. • Upgradeable. • Managed and owned by industry participants. Source: The Money Management Institute 2003 NICSA Technology Forum

  17. Managed Asset Market PlaceThe Players, The Core Functions, The Tools Roger Gregory DST International 2003 NICSA Technology Forum

  18. Managed Assets: The Players • Wirehouse • Sponsor • Product Provider • Hybrid • Supermarket • TAMP “the future ain’t what it used to be” Yogi Berra 2003 NICSA Technology Forum

  19. Managed Assets: The Players • Wirehouse • Sponsor • Product Provider • Hybrid • Supermarket • TAMP • Old-line large brokerage firms 2003 NICSA Technology Forum

  20. Managed Assets: The Players • Wirehouse • Sponsor • Product Provider • Hybrid • Supermarket • TAMP • Wirehouses, firms distributing SMAs 2003 NICSA Technology Forum

  21. Managed Assets: The Players • Wirehouse • Sponsor • Product Provider • Hybrid • Supermarket • TAMP • Asset managers, proprietary or outsourced 2003 NICSA Technology Forum

  22. Managed Assets: The Players • Wirehouse • Sponsor • Product Provider • Hybrid • Supermarket • TAMP • Overlay managers, brand aggregators/consolidators 2003 NICSA Technology Forum

  23. Managed Assets: The Players • Wirehouse • Sponsor • Product Provider • Hybrid • Supermarket • TAMP • Originally mutual fund distribution, • now expanding product offerings 2003 NICSA Technology Forum

  24. Managed Assets: The Players • Wirehouse • Sponsor • Product Provider • Hybrid • Supermarket • TAMP • Turnkey asset management program 2003 NICSA Technology Forum

  25. Managed Assets: Core Functions • Distribution Channel • Financial Planning • Product Offerings • Trade Execution • Custody • Product Provider “if the world were perfect, it wouldn’t be” Yogi Berra 2003 NICSA Technology Forum

  26. Managed Assets: Core Functions • Distribution Channel • Banking • Insurance • Wirehouse • Regional brokers • Mutual Fund Complex 2003 NICSA Technology Forum

  27. Managed Assets: Core Functions • Risk profiling • Asset allocation • Product selection • On-going monitoring • Financial Planning 2003 NICSA Technology Forum

  28. Managed Assets: Core Functions • Product Offerings • Mutual Fund SMA • Annuities • SMAs • Self Directed Brokerage 2003 NICSA Technology Forum

  29. Managed Assets: Core Functions • Trade Execution • Mutual fund • Equity • Fixed Income • Custody • Fully Disclosed/Omnibus • Self Clearing • Trust 2003 NICSA Technology Forum

  30. Managed Assets: Core Functions • Product Provider • Mutual Funds • Pensions/Institutional • Fund Wraps • SMAs • Hedge Funds 2003 NICSA Technology Forum

  31. Managed Assets: The Tools “you can observe a lot by watching” Yogi Berra • Advisor Tool Kit • Interfaces • Decision Support • Order Management • Compliance • Trading Links • Back Office Processing • Reconciliation/Synchronization • Performance Measurement • Reporting 2003 NICSA Technology Forum

  32. Managed Assets: DST Solutions “The towels were so thick there I could hardly close my suitcase.” Yogi Berra • OpenPFA • Focused on firms with distribution channels • MAP • Focused on product providers • DataCenter Processing • ASP • SS Message Hub • Message based interfacing, trading links 2003 NICSA Technology Forum

  33. In-House Servicing of Managed Accounts Chris Flynn MFS Investment Management 2003 NICSA Technology Forum

  34. Discussion Topics • MFS’ Operational Model – Successes and Challenges • Value Added Technology • Highlighting: • LifeHarbor DST – Automated Work Distributor 2003 NICSA Technology Forum

  35. Operational Service Models Internal Servicing vs. Outsourcing • MFS’ Operational Model – Internal Servicing • 27 employees dedicated to operations for 15,000+ accounts New account setup, reconciliation , trading and support services • Cross Trained Staff – produces program experts • Managed account platform fully integrated to all systems through out the firm – trading, sales, back-end compliance • Operational support perceived as critical attribute to success 2003 NICSA Technology Forum

  36. Internal Servicing Get to know your client Ability to employ talent Timely problem resolution Can develop metrics to prepare for growth Ability to design customized workflow Outsourcing Potential cost savings Eliminate training costs and concerns Financial risks due to operational errors are outsourced to third party Advantages 2003 NICSA Technology Forum

  37. Internal Servicing Could be costly: people, technology, infrastructure Outsourcing Potential to lose control of effective client servicing Can lose ability to implement value added technology as needed Place all operational matters in the hands of a third party provider – reputation at stake Disadvantages 2003 NICSA Technology Forum

  38. Value Added Technology Trading and Account Monitoring Technologies • Lifeharbor • Ease in Account Monitoring Heat mapping and grouping of accounts for timely account monitoring and rebalancing • Enhanced Trading Capabilities Tax Aware, Compliance Module • Risk Mitigation Management Enhanced User Security, Activity Auditing 2003 NICSA Technology Forum

  39. Value Added Technology Workflow and Imaging Technologies • Automated Work Distributor (DST product) • Document Scanning On site storage reduction, Easily obtain documents linked by account number • Work Routing Through Queues Workflow designed to move account from opening to trading as well as maintenance • Holdover Analysis Ensures that items left in queues are moving through workflow timely 2003 NICSA Technology Forum

  40. Separate Account Services – Outsourcing as an Option Dave Reinhart The Bank Of New York 2003 NICSA Technology Forum

  41. Effects of Bear Market Net Redemptions Accounts Smaller Sponsors Cutting Manager Fees Bear Market vs. Bull Market Pressure to Reduce Expenses Operations Technology Expenditures Separately Managed Accounts Market Today 2003 NICSA Technology Forum

  42. Managing in Multiple Sponsor Programs means: Multiple Custodian Interfaces Trading Reconciliation Multiple Portfolio Management Systems Sponsor vs. Manager Provided Proprietary vs. Vendor Consolidated Reporting Multiple Ways of Doing Business Account Paperwork Procedures Advisor vs. Sub-advisor Technical and Operational Challenges for SMA Managers 2003 NICSA Technology Forum

  43. Not a New Concept for Investment Managers Mutual Fund Services Custody, Clearing, Payroll, Benefits, etc. Benefits of Outsourcing Focus on Core Competencies Reduced Upfront $ Commitment vs. Building Scalability (Keeping up with Technology) Staffing Peaks and Valleys Offload Operations Risk Speed to Market Outsourcing Operations 2003 NICSA Technology Forum

  44. Selection Criteria Listed in Order Importance: 1. Stability of Outsourcer 2. Specific Expertise in Investment Area 3. People / Culture 4. Technology Platform 5. Cost Source: Celent Communications Investment Manager Survey (March 2002) Finding the Right Outsource Partner 2003 NICSA Technology Forum

  45. For Sponsors: All-inclusive SMA Platform Customized to create a Unique Turnkey Program for a Sponsor Outsource Operations and Technology for your current SMA Program. For Investment Managers: Outsource Operations & Technology of your Multi-Sponsor SMA Business Create your own SMA Product Platform to Support Alternative Distribution Channels Available Outsourcing Services 2003 NICSA Technology Forum

  46. Front-Office Money Manager Research Capital Markets Research Portfolio Design Support Proposal System On-line Account View Available Outsourcing Services • Middle/Back-Office • Trading and Rebalancing • Account Set-Up and Maintenance • Reconciliation • Fee Calculation and Processing • Performance Reporting • Portfolio Accounting System 2003 NICSA Technology Forum

  47. Solutions to Challenges • Industry Standards are being developed to streamline inter-firm processes • Money Management Institute (MMI) • DTCC • Open Architecture • Outsource • ING (Furman Selz) has Outsourced to BNY • Scalable solution for separate accounts 2003 NICSA Technology Forum

  48. Managed Accounts Multi-Manager Challenges Donald A. Foberg Phoenix Investment Partners 2003 NICSA Technology Forum

  49. Phoenix Investment Partners • Phoenix Investment Partners (PXP) is a group of affiliated asset managers manufacturing and servicing Retail and Institutional investment products. • Retail products include Mutual Funds and Managed Accounts • Growth through acquisition strategy: • 11 Managers • 8 Investment Operations • Centralized Distribution - Wholesalers • 5 asset managers selling managed account models through sponsors • 2 back office operations supporting managed account processing 2003 NICSA Technology Forum

  50. Strategy • Review all Investment Operations for STP capability • Develop an Operations and Technology Strategy based on findings • Select initiatives based on impact and need • Managed Account operations and technology first 2003 NICSA Technology Forum

More Related