Roadmap for servicing and operations: Preparing for the long-term instead of reacting to events

AlgoMe Consulting believes in the power of collaboration when delivering change for our clients. In that spirit, we have worked with Parva Consulting to devise a step-by-step approach to creating an operational roadmap. Founded in 2005, Parva Consulting is a consultancy specialised in the Financial Services sector, operating in Milan, Dublin and Luxembourg. Parva Consulting values sustainable growth while remaining a niche consultancy. Their approach is to identify, design and implement customised solutions that allow their clients to efficiently and promptly face the challenges of the future, in a hands-on manner. We have found it useful to share our combined insight in this new article.

The news of the upcoming acquisition of RBC Investor Services by CACEIS[1] marks another milestone in the trend towards consolidation of service providers in the Investment Management industry. It follows the recent acquisition by State Street Corporation of Brown Brothers Harriman’s Investor Services business. It is also reminiscent of the series of acquisitions that APEX, the Fund Administrator, or Carne, the Global Service Provider to the industry, have been executing in recent years in their search for scale.

To those CXOs overseeing global fund operations and outsourcing some of their activities to service providers, a few immediate questions come to mind when hearing the RBC/CACEIS news: What is the rationale of the transaction? What are the benefits for the entities involved? What is the impact of such transactions, for me as a client, or for the investors that my firm is servicing?

The latter is probably the most mulled over question in the C-suite offices of Investment Managers who outsource their operations to fund administrators. Rightfully so, as acquisitions or mergers in these areas – especially during the execution of the transaction – pose significant servicing and operational risks, which Investment Managers ought to be able to pro-actively oversee and manage.

In this article, we are proposing a step-by-step approach to create the conditions of such a pro-active oversight, using the example of fund distribution operations as an illustration, as follows:

Design a vision board of the service provider you want to be

Vision boards are not the exclusive reserve of interior designers. From an operations perspective, CXOs can and should continuously examine what type of Service Providers they want to be for the investors of their funds: What type of provider do we want to be? What level of service do we want to deliver? Do we want to play in the first league, or are we happy to deliver the minimum service required? What is our vision for the future? And how does our current and future vision align with the needs of our investors?

In the case of fund distribution operations, these questions could translate as follows: Do we want to be a local or global distributor? Do we want to meet the specific requirements of our global markets, or are we happy to provide a one-size-fits all servicing model? Are we paper-based or trending towards digitalisation; human-led or bot-driven; or anything in between?

There is no right or wrong answer to the above questions, but there is a requirement for CXOs to clarify and articulate their vision and market position in some sort of mission statement or vision board, which will guide the execution of their operational model and serve as a benchmark to delivery and execution.

Explore the requirements to deliver on your servicing vision

Your vision board is ready. How do you move to execution? The next step is to answer to the proverbial questions: What, when and where? For CXOs, this step consists in thoroughly inventorying and categorising the operational requirements to deliver on their servicing vision.

Coming back to the example of fund distribution operations, let’s assume the case of an investment firm aiming at becoming a first league global fund distributor. In this step, the  CXO’s would need to explore and define the firm’s market coverage; on-boarding system; client service coverage; book-and-records system; language requirements; paying agents’ network; local AML/KYC[2] regulations; and so on.

Build the capabilities to meet your servicing requirements

Once the requirements are defined, the next step is to answer to the question: How can we do this? In this step, the CXOs task is to assess and catalogues the capabilities required to meet the firm’s servicing requirements; which capabilities exist or will be retained in-house; which ones will be outsourced to service providers; which ones require building; and finally, how to balance the allocation of these capabilities on an on-going basis.

In the case of our fund distribution operations example, the CXO will determine whether the client service team sits in-house, or with the service provider; whether to build an in-house CRM system, or buy it off the shelves; whether the distributors due diligence function should be conducted by the internal compliance team, or outsourced to a third-party provider; whether some of the existing servicing processes, such as investors on-boarding, AML/KYC verification, trading and reporting are ready for digitalisation; and so on and so forth.

Continuously align vision, requirements, and capabilities

With that, how do you bring all of this together? In our minds, the answer is to create a mechanism that continuously aligns your vision, your requirements, and your capabilities, in the form of a servicing and operational roadmap. This roadmap captures at a glance, in the form of dynamic KPIs and management information, the vision you have designed for your investment firm; the servicing and requirements you have identified; and the capacity level and performance of your operational capabilities.

Such a roadmap can serve as a blueprint for the risk management dashboards of the firm; it can also serve as a blueprint for the continuous oversight of outsourced operations; and even better as a framework to design RFPs[3] when assessing outsourced capabilities. More importantly, it creates in your firm the conditions of an optimal management of servicing operations, helping CXO’s to pro-actively manage the CACEIS-RBC type news, as opposed to reacting impulsively or in panic.

We have extensive experience in assessing servicing operational models in the investment management industry. If you wish to discuss how to design your operational roadmap, or align your vision, requirements and capabilities, please contact Pierre-Yves Rahari at AlgoMe Consulting (email: pierreyves.rahari@algome.com); or Junaed Kabir at Parva Consulting (email: junaed.kabir@parvaconsulting.com).

[1] “Caceis to acquire European asset servicing activities of RBC,” in Funds Europe, October 2022: https://www.funds-europe.com/news/caceis-acquire-european-asset-servicing-activities-rbc

[2] AML/KYC regulations: Anti-money laundering; Know your customer regulations

[3] RFPs: Requests for proposal