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The onboarding of individual private wealth customers is an area where significant advances have been made – mainly due to improvements in technology. The automation of once archaic, paper-based processes has increased accuracy and speed, and generally made the whole onboarding experience for the private client far less painful. The software industry has responded to the challenge and developed a plethora of highly effective systems. It must be borne in mind, however, that this is a different process, primarily associated with identity, money laundering and the avoidance of mis-selling.
Transpose that activity into the institutional world and a very different picture emerges. For most institutional asset managers, the whole onboarding process fills entire teams with a heady cocktail of dread and frustration. Onboarding mandates from pension funds and life assurance firms is still reliant on spreadsheets, manual processes and duplication of effort. The avoidance of costly errors is maintained by a small number of highly skilled, specialist staff with many years of experience in the onboarding field. Given that forms of automation have been successfully introduced into so many functions within investment management, why is this area of onboarding institutional mandates still so labour-intensive and fraught with risk?
The answer is complexity. If one studies a typical, high-level project map from an agency that places pension fund money, it begins with an RFP process before moving on to the IMA (the Investment Management Agreement - covering investment objectives, risk measures to be monitored etc).
This agreement is then signed off and the next item on the roadmap is ‘planning’ – one simple word that does an injustice to a great swathe of very intricate, sequential tasks that must take place before trading can commence.
Most medium to large asset managers (from £30-60 billion Assets Under Management (AUM) and over £100 billion AUM respectively) will have staff that deal with this ‘planning’ activity, drawn from the front office and operations, sales personnel (and product managers when the task involves launching funds).
The vast majority of this post-IMA work is conducted on multiple spreadsheets - and even some of the tasks handled during the RFP and IMA construction stages. There is therefore sometimes a problem with the information flow stemming from tasks associated with negotiating the IMA.
Product teams, sales and fund managers are all part of the process, but sales teams tend to be less interested once the mandate has been won, fund managers just want to get on with running the fund and the product teams will not necessarily have the full picture of the project.
Despite having an onboarding team, larger asset managers will nevertheless always rely on operations and other functional departments to complete their share of the tasks. In a heavily siloed organisation, this creates multiple points of failure. For smaller asset managers or hedge funds, there is generally better communication and clearer delineation of task ownership.
A lot of problems occur because information does not always flow down the organisation from the people who know. Compliance and risk rules might be put into the system incorrectly through miscommunication, as different people interpret the rules in different ways. Management fees is another area where interpretation can vary. For example, when bringing on mandates, is the asset manager
calculating the fees based on the value at the end of each month, or six months, or the average of those six months?
Asset managers also have to consider which markets they are trading in and which brokers (because the firm has to be authorised for every fund for each broker in order to trade with it).
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