Future of Operations: Simplify, Innovate, Transform
The asset management industry is at a crucial juncture facing challenges that will transform the business. Asset management operations has very effectively reduced cost and improved efficiency in the existing operational framework, but is now presented with a situation where incremental improvements are getting harder to realize. To support the continued evolution of the business, operations needs to undergo transformational change.
SIFMA’s Asset Management Group and Broadridge jointly address the drivers of change, and the topic of operational transformation, in their white paper titled Future of Operations: Simplify, Innovate and Transform. In the paper we share our vision for the future hoping that this vision will help AMG members work collectively to streamline requirements, eliminate steps, embrace innovation and innovative technologies for genuine transformation.
Excerpt
Executive Summary
The pain of the global financial crisis, and the subsequent regulations, is starting to fade from view. The asset management industry is now at a crucial juncture, facing new challenges that will transform the business. In active management, the industry has created more complex products to generate alpha, while the growth of passive management, spurred by fintech competition, is compressing fees. At the same time, expansion into new markets has added costs. Now, redesigning operations is critical to being nimble enough to support the industry’s evolution. There’s also the promise of new technologies that can be used for innovation in-house and with the help of partners. Facing these challenges and leveraging these opportunities will require serious improvements to back- and middle-office operations. Everything from data validation to trade reconciliation will need to be overhauled. For genuine transformation, experts say, it’s not enough to improve the steps in a process; financial institutions need to eliminate steps. Specifically, executive members of the Asset Management Group of the Securities Industry and Financial Markets Association (SIFMA) say that leading firms should:
1. Work collaboratively. Firms should collaborate to solve common problems; use associations to identify and promote best practices; and partner with service providers, utilities and regulators to tap their specialized skills and mutualize non-differentiating functions.
2. Tackle common pain points. Many of the industry’s biggest challenges come from a lack of standardized processes: Standardizing data is the top challenge and sets a foundation to accelerate change.
3. Leverage transformational technology. Cloud computing, artificial intelligence (also called robotic process automation) and distributed ledger technology can be transformational over the coming three, five or 10 years—but investing now is vital.
4. Assess, accept and mitigate risks. Executives should draw from the experiences of other industries to identify the risks that come with transformation. During times of large transformational change, it should be understood that risks are higher than in a business-as-usual operating environment. The traditionally risk-adverse financial services industry must balance the need for bold change against the fear of producing subpar outcomes. Since all risk is not equal, the industry needs a clear awareness of the new levels of increased risk and then must manage it accordingly.