Top 5 Operational Headaches for Investment Management Companies

If COOs and operating directors are worried about what's happening in their middle-office and back-office operations, they're not alone.

Operational headaches aren't just headaches in themselves; the headache is financial, too.

Firms find themselves making common mistakes, and they'll need an answer for them at some point. Based on our nearly 15 years of experience specializing in investment operations support, below are some of the main headaches from operations.

Top 5 Operational Headaches for Investment Management Organizations

Wrong Performance

Portfolio managers, traders, and client relationship managers are all inconvenienced when the operations team produces bad reports and therefore generates wrong performance. The operations head will certainly take the heat.

Poor performance reporting hurts a firm's credibility. After seeing enough inaccurate reports, the clients will lose trust, and they can always find another wealth or asset manager to go to. There are are a record number of SEC-registered advisories for them to choose from.

Too High of Operational Headcount

Investment management middle-office operations work does not come in 8-hour increments on a predictable basis. Workloads are often heavier at the first half of the month, and they tend to lighten up in the second half.

On top of that, clients may come and go, so reporting workloads may fluctuate.

As a result, investment firms struggle getting the appropriate staffing numbers. They may err on the side of over-hiring to prepare for the busier times.

But for the slower times, it's painful. Investment firms end up paying for under-utilized employees.

Bad Hires

Hiring the wrong person is a major source of regret for any organization.

These individuals never seem to learn from their mistakes. They make the same reconciliation reporting errors over and over again, and they seem disinterested in improving. They may also shift blame or fail to take initiative to solve the issue.

They might quarrel with their coworkers and not cooperate with the operations director. Whoever chose to hire this person will be feeling the heat; their decision-making abilities will be questioned.

In the end, hiring them was a waste of resources and a bad investment. If they get fired, now it's back to square one.  It's time to call up the recruiter, pay the fees, and begin the hiring process all over again.

Not Getting Enough ROI out of Your Technology

Investment firms may have state-of-the-art portfolio accounting and wealth management technology software, but there are many features the system has that the organization isn't using, either because they:

  • aren't familiar with all of the features
  • lack the skills to make use of those features
  • are so used to sticking with the routine they already know, they aren't willing to learn more.

For how much advisory firms are paying, they're not only not getting their money's worth, but they are denying themselves operational efficiency gains that technology brings. They could automate their processes, take advantage of all the great features that previous software never had, and they can leverage quality control systems for their daily recon reports.

The longer this technology is being underused, the less ROI the firm gets out of it.

Employee Turnover

It's one thing getting rid of someone no longer wanted. It's another thing when a valued team member leaves on their own. And if turnover is happening frequently, the greater the operational risk is.

If a star portfolio accounting associate in the back-office leaves, it leaves a huge hole.

  • Who will replace the departed employee?
  • Does the replacement have enough skills?
  • Does the replacement have enough capacity in his/her schedule?
  • Are there documented procedures to follow?

The result is lower productivity and efficiency, plus a higher rate of errors and delayed reports.

Just like firing a bad employee has a cost, turnover has costs, too. Either way, firms still have to pay a recruiter, then pay additional costs associated with hiring and training.

Avoiding Investment Management Operational Headaches

Hedge funds, wealth and asset managers, and family offices all deal with similar operational challenges, but they don't have to live with these issues forever.

There are both in-house and outsourced solutions to these middle-office problems, which will be discussed further in another piece.

And given the financial impact of operational headaches, investment managers can't afford to tolerate these problems for long.

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