“Front-to-back” integration has been the dominant project in many investment firms
Over the past decade, many investment managers sought better integration of their front, middle and back office systems and data. Helping to improve efficiency and reduce operational risks, these projects have consumed swathes of resources and expense and, in many firms, are still in motion.
But through this period, less talked about has been the need to better connect the investment “front office” with their most important stakeholder — the client. There is a risk that a multi-year, resource-intense front-to-back project becomes predicated on a product set that is no longer fit for client needs of tomorrow. Nor does it address the competitive pressures on investment managers to better demonstrate their unique processes and value-add.
“Front-to-client” integration matters most
Faced with ever-increasing client demands and competition, we expect a shift in the focus of investment groups in the next decade. Taking centre stage will be the concept of “front-to-client” integration.
So what does that entail? Investment managers have long structured their organisations with clear separation between their investment and client relationship experts. That separation largely reflected the need for specialisation. But it has also come at a cost.
Today, many large firms face a fundamental problem —the information accessible to their investment experts far outweighs that of the relationship manager, or the client. Achieving front-to-client integration redresses that imbalance. For many, this requires a re-wiring of their existing processes, systems and people — particularly in two key aspects.
“Lifting the lid” — providing more access to investment data and information
First, better and richer investment information must get into the hands of their clients. For many groups, this is a cultural taboo to overcome. A client’s access to investment information has always been controlled and restricted by their investment manager. This reluctance to share often reflected a fear that investment IP will escape. Another common justification is that a client will not have the sufficient investment knowledge to interpret the information. Yet that is self-fulfilling – restricting information only acts to cement the knowledge gap.
At its simplest, the opening up of investment information for clients will include richer, more timely and frequent access to portfolio data, such as holdings and risk metrics. But clients may not always need more detailed information, rather more relevant information. That extends to better insight on the investment process, for example, research on individual positions, allocation decisions or aggregated data demonstrating how the research process impacts their portfolio. Deciding just how much to share still puts investment groups in an uncomfortable position.
It also stretches beyond the antiquated concept of “client reporting” which is typically based on pre-canned templates, set time periods and reports distributed in rigid ways. The future will see focus shift from reporting to enabling clients to have a rounded understanding of their portfolio, on their terms. For example, reports provided on set frequencies will give way to constant access and alert-based information. Data will be supplemented with interactive tools and customisable templates. And clients will be allowed to access information in multiple ways (e.g. via API). These are still only stretch goals for many groups, but it will soon become the standard of doing business.
“A two-way street” — creating dynamic engagement with clients
In addition to the information itself, investment groups will redefine the way they communicate with their clients. To date, it’s been mostly one-way information flow. Asset managers publish swathes of reports, blogs and thought pieces for their clients. It’s all valuable insight, but often begs the question, how does it specifically relate to a client’s portfolio? Considering each client is unique, that’s hard to answer.
Front-to-client integration attempts to bridge that divide. Let’s take capital market assumptions (CMAs) as an example. Many investment groups publish proprietary CMAs via PDF reports, sometimes with data made available in spreadsheets. What’s most important to the client is how those assumptions relate to their portfolio and the products they use. Supplementing CMAs with tools, systems and technology to allow clients to model-up their own portfolio and products can drastically change the nature of the conversation.
Connectivity is the barrier to achieving front-to-client integration
Most groups have all the building blocks to bring their investment front-office and clients closer together. The hurdle is that it requires systems and processes that transcend their existing structures. Strict budgeting and project resourcing defined by today’s siloed teams will neither solve nor identify the problem. But successful investment managers of tomorrow will find ways to break down the barriers and get closer to their clients.
To learn more about how Jacobi works with asset managers, owners and consultants to solve investment technology challenges, visit www.jacobistrategies.com