Six Sigma Benefits for Investment Managers

January 10, 2021 - Doug Moromisato

Inefficient practices hurt an investment firm, be it internally or when facing the client.

Poor-quality work reflects poorly on organizations, and operations has a role to play in getting things right.

If you’re serious about increasing overall organizational performance, then you should follow Six Sigma.

What is Six Sigma?

Six Sigma is a data-driven approach to identify and significantly reduce errors in your products and services.

It’s also about addressing issues within leadership and management structure that result in errors and inefficiencies down the chain.

You can get started by assessing your operational setup:

  1. Identify the glaring weakness(es) — i.e. reporting errors
  2. Position resources to address weakness(es)
  3. Get your team to buy into the vision, that is, a never-ending commitment to eliminating errors
  4. Prioritize activities
  5. Assign responsibility
  6. Identify what to measure and how
  7. Establish governance
  8. Acknowledge efforts

How Six Sigma Benefits Investment Managers Operationally

Fewer Cash and Positions Reconciliation Errors

Cash and positions breaks due to duplicate transactions, missing prices, improperly inputted data, etc. are killers to daily reporting accuracy.

Do you simply react to errors, or do you identify the root causes of errors in order to prevent them from happening again?

If your response is the latter, your commitment to Six Sigma methodology may reveal that your team lacks proper training and good documentation to perform their jobs.

You might also conclude it’s time to invest in an automated quality control tracking system to catch errors where human efforts are inadequate and where custodial data is faulty.

Focusing on the root of problems, not the branches, will most certainly reduce the number of mistakes.

Quicker Turnaround Time for Reporting

Having a system in place to identify the source of errors and steps to fix them will cut down the time it takes for your back-office operations staff to finish tasks.

One of the main reasons reports are delayed is spending time looking for elusive breaks in positions and cash. Another reason is manually fixing the same break for potentially hundreds of accounts.

If your staff knew the right methods to find mistakes more quickly, or if there was a system to automate the reconciliation process for the same mistakes, your trading and investments teams will get will get the reports done before the deadline.

Reducing Operational Costs

Commitment to process improvement will lead to a reduction in costs associated with a task, which frees up resources for other needs.

Perhaps you realize your current portfolio accounting software is too expensive, so you opt for a more cost-friendly service. Maybe the software is too difficult to use and your overhead costs are high, and you conclude that outsourcing your reconciliation reporting and billing needs is a good way to achieve your advisory’s operational and financial goals.

Or you might conclude to upgrade to systems that can handle the functions you’re looking for. Our TAMP1 platform can help.

If one employee could reduce a task’s completion time by 20 to 30 minutes each day, that translates into thousands of minutes saved every year, which is more than one full workweek of time and resources that could be invested in other areas of operational improvement. Now multiply that one employee by however many staff members you think can be more efficient in their time, and now you’re talking about serious cost savings.

Promotes a Commitment to Excellence

Commitment to excellence is not just a slogan for the Oakland Raiders. The reality is Six Sigma encourages just that: excellence.

Like a good football coach getting the players to buy into a vision, an operations manager does the same with his or her back-office team.

The staff is encouraged to take pride in their work while providing a series of steps to achieve the desired goal. Following the process yields positive results, reinforcing the pride in a job well done and a desire to achieve more.

Just as an asymptote is a line that never hits zero with each movement along the axis, you might not reach zero mistakes permanently.

But by dedicating yourself to never-ending improvement, you certainly get closer and closer to zero.

Improve Your Operations

Whether you’re feeling the heat internally, from clients themselves, or you simply hold yourself to a higher standard, then Six Sigma is your solution.

You will achieve a more efficient operation via reduced errors, cost savings, time saved, and a more proactive approach to problem-solving.

While the goal of Six Sigma is to reduce errors, Six Sigma can also be treated as a mindset. It’s about always seeking improvement and never being complacent. Adopting such mindset, operations will certainly improve.

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