Although you won’t hear an investment operations manager shout “All aboard!”, they still share some things in common with train conductors.
We are not suggesting the hard skills needed to operate a train are the same as those for managing a middle- and back-office staff, but RIA operations managers and conductors share a similar set of responsibilities relative to their organization.
Operational success is dependent on their competency, leadership, and decision-making abilities, and any failure, through their own doing or a result of their staff (crew), falls back on them.
What an Investment Operations Manager Does: How They’re Like Conductors
They Ensure Everything Runs On Time
A conductor has to make sure the train reaches its destination by a certain time. Routine tasks before the next departure must also be done in a timely manner so as to reach the next stop according to schedule.
Likewise, operations managers must ensure daily reconciliation reports are completed by a certain time and all other deadlines are adhered to. They are also responsible for ensuring the data will download from the custodian and enter the portfolio accounting system so that the rest of the work can get done.
A failure to make things run on time hurts the reputation of both a conductor and operations manager.
They Provide Assistance to Their Team (Crew)
Train conductors can help their crew with connecting cars, operating switches, and making repairs. Good conductors will demonstrate their expertise and pass their know-how along to their subordinates, empowering and entrusting them to do the job with minimal assistance in the future.
Operations managers will do a similar thing. When back-office portfolio associates have trouble executing a corporate action in the portfolio accounting software or cannot find a break in the cash or positions reconciliation, a good manager will show their staff how to perform the tasks effectively and without future assistance. Our previous blog highlights ways RIA operations managers can better train their middle- and back-office teams.
They Avoid Operational Risk
A train malfunction or derailment will prevent freight and passengers from getting to their destinations (on time), and in a worst case scenario, the event could be fatal. Conductors must be vigilant, keeping an eye out for obstructions on the tracks and paying attention to train route signals. Pre-departure safety checks, speed monitoring, and awareness of weather conditions are other ways to minimize risk.
Likewise, operations managers must also avoid risks and consider these questions:
- Are the right people hired?
- Are the middle- and back-office teams well-trained?
- Are there backups in case a team member is out sick, on vacation, or leaves the firm for good?
- Are the backups well-trained?
- Is there an appropriate number of staff members to handle the work?
- Does the staff have good process documentation to follow?
- Is the staff properly trained in using the portfolio accounting system?
- Are the custodians sending data properly and accurately into the accounting software?
- Is there a quality assurance system to check for reporting errors?
- Is the organization in compliance with industry regulations?
- Is client data secure?
The more “no’s” there are answered to the above questions, the greater the operational risk. The risks not only threaten an advisory’s ability to deliver a service in a timely and consistent manner, but they could hurt the firm financially.
As an example, turnover threatens an investment advisory’s continuity, and of our blogs talked about the risk of losing key employees. If employees constantly come and go, taking their know-how with them, how will the work get done? Not only does this mean operations managers have to expend resources hiring a replacement, but it means you’re dealing with poorly equipped backups producing sub-standard reports.
Clients will lose trust in an advisory that produces erroneous reports, and they’ll move their assets to rival investment management firms. The results are fewer management and performance fees. Inefficient practices and use of resources will chip away at profit margins as well.
If not from inaccurate reconciliation and performance reports, then a failure to comply or a significant data breach will be what forces the firm’s closure, followed by a hefty fine.
While the risks a train conductor faces could have life-threatening consequences (and we are not comparing the physical dangers with those an RIA operations manager faces), a poor operations management could have fatal consequences for the investment firm’s survival.
Outsourcing As a Way to Avoid Risk
One way investment operations managers can eliminate risk is middle- and back-office outsourcing. Wealth and asset managers, hedge funds, and family offices benefit from these services because the outsourcing companies will provide a team of portfolio accounting experts to do the work in a cost-effective manner.
Because investment management outsourcing companies hire and provide talent, this saves RIAs time and money not having to hire a headhunter, pay recruitment fees, and train new employees. In addition, the outsourcing provider can easily adjust the labor requirements according to the firm’s needs.
Keeping Investment Management Operations On Track
While train conductors and investment operations managers clearly do not share the same hard skill sets, nor do they face the same risks, they still share similar duties as they relate to keeping things running on time, fixing issues, and avoiding risks for the well-being of everyone involved.
Operations managers will be faced with tough decisions when facing threats, such as:
- bad reporting
- operational turnover
- rising costs
- inefficient use of resources
- unsecure data
Managers will be judged by how they handle these problems, and fortunately, there are resources to help investment operations management overcome the challenges. In short, there is no reason to be derailed by poor operations.
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