Driven by continued investor demand for transparency and personalization as well as distributors’ desire to offer strategies in a variety of investor-friendly wrappers, managers are clamoring to bring new SMA strategies to market. As we look ahead to a year that promises fast-paced innovation, it may be helpful to consider the critical role of investment operations in the growth of SMAs and its ongoing impact on the industry’s future.

THE DAWN OF SMAS AND UMAS

While some think of SMAs as a relatively new investment product, they have been arounds since the mid-1970s, when they emerged as a response to the need for more tailored and scalable investment solutions. Retail investors sought alternatives to traditional mutual funds, desiring a more individualized approach to wealth management. This era witnessed the birth of SMAs and, later, Unified Managed Accounts (UMAs). SMAs allowed individuals to have their portfolios managed by professional advisors, providing a level of customization
and control not previously available with traditional investment options.

They also offered transparency, tax efficiency, and the ability to tailor investments based on individual investors’ preferences. Building on the foundation laid by SMAs, UMAs integrated various investment vehicles, such as mutual funds, exchange-traded funds (ETFs), and individual securities into a single, consolidated account. UMAs brought increased flexibility, enabling advisors to implement a diversified investment strategy across multiple asset classes seamlessly.

OPERATIONAL CHALLENGES LEAD TO OUTSOURCING

As asset managers began to launch these new products to meet the evolving demands of investors, they were confronted with a myriad of operational challenges. One of the primary hurdles was outdated technology, which posed significant obstacles to managers looking to accommodate the increased volume of retail accounts. Likewise, operational teams, accustomed to handling a limited number of institutional accounts, found themselves ill-equipped to address the substantial volume of retail accounts. While an early solution was to add new systems, asset managers increasingly found that outsourcing operational functions such as trade execution, reconciliation, and reporting was a better alternative when looking to grow their SMA offerings. Outsourcing enabled asset managers to continue to deliver these strategies while remaining focused on their core competencies like portfolio construction, client relationships, and strategic planning, while increasing efficiencies.

Specifically, outsourcing investment management operations brought several benefits to the table:

• OPERATIONAL EFFICIENCY: By outsourcing routine tasks, such as trade settlements and portfolio accounting, firms could streamline their operations, reducing costs and potential errors.
• SCALABILITY: As the popularity of SMAs and UMAs grew, outsourcing provided the scalability required to manage a larger number of accounts without compromising service quality.
• RISK MANAGEMENT: Outsourcing partners often specialize in specific areas of investment operations, bringing expertise that helps mitigate operational risks.
• TECHNOLOGICAL ADVANCEMENTS: Outsourcing partners invest heavily in technology, providing access to cutting-edge solutions that are otherwise cost-prohibitive for individual firms.

TECHNOLOGY DRIVES PERSONALIZED INVESTMENTS

In recent years, the industry has seen many technological advancements that have transformed the landscape of SMAs. The integration of digital platforms and trading algorithms allow for greater efficiency, enhanced portfolio customization, and real-time monitoring. Artificial intelligence creates increased efficiency and speed to market, while advanced data solutions ensure that managers have or easily access the information they need to identify trends, make decisions, and measure success.

In the current landscape, where investors are increasingly in search of portfolios optimized for after-tax returns, greater control over factor exposures, and alignment with their values, technology is revolutionizing how asset managers respond to these demands. Technology has enabled personalization at scale with significantly reduced day-to-day manual efforts, marking a transformative shift in the industry. We are seeing an array of managers, from global institutions to smaller boutique firms, that have experienced the benefits of SMAs and are now expanding into model portfolios, direct indexing, and multi-sleeve accounts, for a full suite of personalized investment offerings.

THE PATH AHEAD

SMAs and UMAs have evolved from basic portfolios to highly sophisticated, personalized strategies to meet the diverse needs of investors in an ever-changing market. Looking ahead, the future promises even greater innovation. The integration of machine learning, AI technology, and further advancements in data analytics are poised to – once again – reshape the SMA/UMA landscape. In the years ahead, we expect operations to continue to be a key part of bringing new investments to market, and we look forward to partnering with our clients as they navigate the new opportunities ahead.

Download a PDF version of this article here.

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There have been countless articles written about the seismic implications this revolutionary technology will have on the future of nearly every industry. But for many growing asset managers, it can be difficult to understand exactly how AI will impact their business and whether or not the time is right to invest.

At Archer, we have hands-on experience using AI to streamline investment operations. We’ve been following AI in the asset management industry for years and and aim to help our clients better understand these new technologies and their potential impact to our industry.

Whenever a new technology emerges, there are benefits and risks to being an early adopter. To help educate our clients on how this technology is being used today, we sat down with two of Archer’s technology experts, Albert Chu and Peter Ryczek, to discuss what they’re seeing when it comes to AI in asset management.

AI has leapt into the public awareness over the past year or so, creating opportunities and challenges. What do you see as the promise and the danger of using AI in our industry?

ALBERT: The promise of AI and generative AI (GenAI) is that it will be the next leap in productivity and efficiency for all industries. Here are a few ways:

• Improving operational efficiencies by automating and optimizing business processes via report writing and code development and assisting with regulatory compliance.
• Assisting customers and employees by providing personalized recommendations and suggestions for problems.
• Providing insight into new opportunities by discovering trends, including customer and market patterns.
• Generating growth areas such as new models, investment strategies, marketing campaigns, and training materials.

GenAI tools however are still relatively young. It is important to understand the underlying data sources and vet the information provided.

PETER: The impact of AI on the financial industry is substantial. It can enhance efficiency, streamline processes, and provide more accurate predictions. For instance, AI algorithms can analyze vast amounts of financial data much faster than humans, helping in making better investment decisions and managing risks.

However, danger can lie in the potential for over-reliance. If we let AI make all the decisions without human oversight, there’s a risk of blindly trusting the algorithms, which may not account for unforeseen events or outliers. Plus, there’s always the concern about data security and privacy.

Finding the right balance between the benefits of AI and the need for human judgment is crucial to ensure a harmonious integration into the financial world.

Investment operations is a core feature of Archer’s services and you both mentioned that AI can be used to increase efficiency in operations. What are the ways that Archer is currently using AI?

ALBERT: Traditional AI is the solving of specific tasks with predefined rules. When patterns are found, the patterns can be turned into automated processes by codifying the manual steps. Automation reduces errors. Common errors are also patterns, and they can be eliminated by adding in rule-based checks. GenAI extends AI by creating new content that shares characteristics of the datasets it was developed from.

At Archer, we excel at processing many accounts at scale through automation. For instance, our Order Management System utilizes blocking and pro-ration functions to reduce the number of times a scenario needs to be executed. Our system also leverages AI to smooth the process for new account setup, systematic withdrawals, and tax selling. In addition, it allows us to identify repetitive errors for certain transactions or user behaviors, and either stop or warn about the errors. The ultimate benefit is that we have high operational productivity.

What do you see as some other opportunities for AI to be used in the Financial Services industry?

PETER: I see a multitude of opportunities for AI in the financial services industry. As I mentioned earlier, the key to maximizing AI’s potential benefits is implementing it responsibly and ethically.

Here are a few examples that showcase the versatility of AI in transforming various facets of the financial services industry, from customer interactions to back-end operations:

• Fraud Detection: AI can spot unusual patterns in transactions or behaviors, helping to identify and prevent fraudulent activities.
• Risk Management: AI can assess and predict risks more accurately, aiding in portfolio management, insurance underwriting, and lending decisions.
• Algorithmic Trading: AI algorithms can analyze market trends and execute trades at speeds impossible for humans, optimizing investment strategies.
• Regulatory Compliance: AI can assist in ensuring compliance with ever-evolving regulations by automating processes and monitoring transactions for suspicious activities.
• Data Security: AI can bolster cybersecurity by identifying and mitigating potential threats, ensuring the safety of sensitive financial information.
• Operational Efficiency: Automation through AI can streamline routine tasks, reducing operational costs and increasing overall efficiency.
• Predictive Analytics: AI models can analyze historical data to predict market trends, customer behaviors and economic shifts, aiding in strategic decision-making.

ALBERT: In the capital markets, traders use AI to identify and act on market trends. Investment management shops acting on those same trends create products and marketing materials customized to their target customers. Another interesting GenAI tool is IBM’s watsonx Code Assistant for Z which reads legacy COBOL code prevalent on many financial system mainframes and converts it to structured Java.

As we all know, the financial services industry faces lots of new and changing regulations. Developers are using AI to understand these regulatory changes and assist them in the making of necessary code changes which can be cross checked to a code repository. Banks are using GenAI to find and summarize information in documents and contracts, which accelerates creation of documents, reports pitch books and client presentations. They are also deploying AI chatbots and virtual assistants to help answer customer questions or to direct inquiries to the appropriate departments.

With AI becoming increasingly accessible, it feels like we are on the cusp of some incredible changes. What are the risks and benefits of being an earlier adopter of AI? A late adopter?

PETER: Here’s how I would break it down:

In essence, the decision to be an early or late adopter of AI involves careful consideration of industry dynamics, organizational readiness and risk tolerance. Striking the right balance is key to harnessing the transformative power of AI while mitigating potential pitfalls.

ALBERT: The benefits of being an early adopter are recognizing the power of AI/GenAI and immediately reaping the productivity and operational efficiency benefits. However, an early adopter must also understand the risks and limitations of GenAI. There may be embedded bias in the underlying data. Data privacy, cybersecurity, and intellectual property are also key concerns. Indiscriminate and careless use has gotten many early adopters in trouble, so all output still needs to be carefully vetted.

The AI Era

With revolutionary technologies pushing the industry forward, asset managers should weigh the benefits and risks of implementing AI into their current operations and product development. Even if your business is not ready to make a significant investment in AI, it’s important to pay attention to the technology and consider the different ways it can help your business grow. Generating alpha, analyzing data, and driving back-office efficiencies are just the beginning. No matter what stage your business is in, reach out to us today to find out more about the ways AI can help your business now and in the future.

Download a PDF version of this article here.

Our Technology Contributors

Albert Chu, Senior Vice President, Technology
Albert Chu, joined Archer in 2001. With experience leading management consulting projects at Andersen Consulting and as the Technology Director at Smith Barney Capital Management, Albert has managed a spectrum of large projects focused on integrated business knowledge, performance measurement, web integration, distributed processing tech. At Archer, he serves as an enterprise architect, where he combines both strategic and technical knowledge needed to design, build and scale solutions to meet the needs of Archer’s clients.

Peter Ryczek, Senior Vice President, Technology
Peter has over 20 years of experience in development, integration, and implementation of high-performance software and computer systems for research and financial institutions. Throughout his career, Peter has been involved in conversion of legacy systems, leading the implementation of one of the first high performance IBM SP parallel UNIX systems. Peter was part of the supercomputer division at the Lawrence Livermore National Laboratory, where he was involved in software development, configuration, security, and performance tuning of ASCI Blue and White systems. Peter has been with Archer since 2001, where he focuses on developing and evolving Archer’s award-winning platform to meet the needs of our growing client base.

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As the industry continues to evolve, so does our business and the way we serve our clients. Remaining nimble and responding to industry trends is part of our DNA at Archer, and will remain a core aspect of our culture for years to come. This dedication to progress has fueled our success thus far as well as that of our clients.

ENHANCING OUR SERVICE OFFERING

In this article, we’d like to share the ways we’re pursuing innovation today as well as our plans to continue doing so. To start, here are a few enhancements we rolled out in 2023 and will continue implementing over the next year:

FLEXIBLE SOLUTION FOR TAX OPTIMIZATION & DIRECT INDEXING

As investors continue to call for customized offerings, asset managers need infrastructure that enables them to create and distribute these products efficiently and effectively. In 2023, we responded to this demand with an open architecture solution for bringing tax-efficient strategies to market. By partnering with Archer, managers can leverage a proprietary or third-party optimizer or leverage our partnership with Brooklyn Investment Group.

ELEVATED AFTER TAX PERFORMANCE

Additionally, we are helping asset managers provide better visibility into how fees and taxes affect performance with our after-tax performance solution. Clients leveraging this service can access custom client report packages that compare a portfolio’s total, fee-adjusted, and after-tax returns.

IMPROVED CLOUD-BASED DATA STORAGE

Asset managers are using data to identify trends, make decisions, and measure success. Archer offers investment managers a variety of options for efficiently accessing data, including our data cloud hosted through Snowflake. Managers using our data cloud can access a complete dataset on their terms, with greater flexibility and efficiency that leads to better investment management decision making. In 2024, we will continue to make the Snowflake data cloud available to our clients to provide more flexibility in terms of the type, amount, and arrangement of data managers can use to enhance their operations.

ARCHER’S 2024 PRODUCT ROADMAP

In addition to these continued rollouts, we’re excited to share with you our plans to expand our technology offering and operations support in the coming year. Here are a few of the enhancements we have planned to launch over the next 12 months:

VALUE-ADDING SERVICE ENHANCEMENTS

To increase efficiency, we’re leveraging AI to further automate reconciliation and cash flow processing. The technology will automatically identify and match transactions and close out paperwork, creating efficiencies for the service team. We’re also enhancing our client service dashboard to maximize efficiency and response time for client service requests through better routing and queuing. We’re using Gecko, a workflow and oversight tool that uses AI to create efficiencies in monitoring and addressing client inquiries, to supplement our best in breed client experience. This will enable increased transparency into incoming inquiries and requests as emails are captured by the ticketing system, automatically assigned to agent teams, and tracked for SLAs.

GLOBAL T+1 SETTLEMENT READINESS

On May 24, 2024, the SEC’s mandate takes effect, requiring trade settlement to move from T+2 to T+1 for cash equities, corporate debt, and unit investment trusts. T+1 readiness has been a focus for our clients as the industry prepares for this shift. At Archer, we are familiar with this timeline; Archer currently matches more than 95% of trades on trade date. We are working with our clients to make sure they are ready for the shift, and taking several steps to ensure a smooth transition. For example, we’ve instituted a DTCC product called DTC Trade Match (level 1) to reduce the time required to identify and resolve discrepancies due to outdated broker SSI information. We’re evaluating a “swift return” functionality to provide additional information on trade status (e.g., matched, unmatched, settled, etc.). We’re also conducting preliminary analysis on a “Match to Instruct” product (M2i) within Central Trade Matching (CTM). This will take the matched transaction in CTM and submit it as an affirmed confirm into the settlement cycle at the DTC, removing manual touchpoints. We are also engaging in a T+1 industry working group to ensure best practices across the board.

BUILDING A FOUNDATION FOR FUTURE INNOVATION

I couldn’t be prouder of what we’re building at Archer. None of this would be possible without our incredible team and clients committed to pushing the boundaries of innovation every day. We’re thrilled to see what the future holds. In the meantime, I hope you all find time to spend with your loved ones this holiday season, and I look forward to another successful year together.

Download a PDF version of this article here.

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In this video, Archer’s Head of Client Experience Jessica Frost talks with Senior Account Executive Bill O’Toole and Senior Business Analyst Jon Anderson about the evolution of technology and ways asset managers are maximizing it to grow their business including:

• The Next Generation of Personalized Investments
• How Technology Supports Direct Indexing and Multi-Asset Strategies
• Future of Data Advancements
• Data Cloud Storage

The post Video: New Ways Technology is Driving Growth appeared first on Archer.

An influx of new investment products combined with an increasingly complex investment management ecosystem has led to increased complexity for investment operations teams. The growing number of recordkeeping parties, including custodians, sponsors, and fund accountants are tasked with providing a growing amount of information in a shorter timeframe. With reconciliation becoming a bigger focus for investment operations teams, it is important to have a full understanding of Archer’s “Dynamic IBOR” approach.

KEY ELEMENTS OF ARCHER’S IBOR

• Trade Flow: The manager’s completed trades create positions or holdings for their portfolios.
• The Reconciliation Process: Information from custodians, including positions, transactions, trades, and tax lots (when available from the custodian) is sent via automated feeds which are used to reconcile against our IBOR.
• Corporate Actions: Corporate actions such as mergers, splits, spinoffs are pulled in from a reference data provider and applied to the positions.

UNDERSTANDING DYNAMIC IBOR

Archer provides the manager with an IBOR at the start of each trading day, and then incorporates the golden source of information for cash and positions while simultaneously resolving custodian/CBOR issues. In other words, the account is stamped reconciled before discrepancies are resolved so that trading teams can move ahead efficiently.

RECONCILIATION SUPPORTS DYNAMIC IBOR

Because many applications cannot facilitate trade booking in a timely manner, trading teams believe that reconciliation is a prerequisite for an IBOR. This is not a limitation with Archer, because we use a dynamic IBOR and we have the golden source for trade flow and corporate actions. This means that, instead of a prerequisite, reconciliation is an exercise of following up to ensure that the custodian has accurate holdings and trades until our records match the custodian’s.

At Archer, an account is considered fully reconciled once all the issues are identified and we know that our system is correct. The process is supported by Archer’s integrated connections to trade partners, custodians, and fund accountants, resulting in faster transaction bookings and match resolutions.

ARCHER’S DAILY RECONCILIATION PROCESS

BEGIN THE TRADING DAY WITH CONFIDENCE

Archer’s unique Dynamic IBOR enables asset management teams to trade earlier in the day with the knowledge that they have the most accurate and complete investment book of record, all backed by Archer’s team of retail and institutional reconciliation experts.

Download a PDF version of this article here.

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1. Data Transfer Efficiencies

The data cloud eliminates the need for an FTP site, which means that instead of waiting for file transfers, our clients can access these huge data set within seconds. There is no need for asset management teams to write a program to watch for the file, get the file, and load; once Archer populates our local copy, it is available right away.

2. Full Access to Complete Data Sets

This solution makes all data available, so rather than having to communicate which data sets are needed, the user can pick and choose what they need at that time. Doing so eliminates the need for permissioning and access, which have to be constantly updated on both sides of an FTP transfer. Once the update is complete, the asset manager’s third-party tool reads it immediately.

3. Data Sets are Dynamic

With the Data Cloud, because all available fields are included, querying on any data field is possible. All updates are automatically passed to all data sets and can be accessed through third party tools and investment management teams are able to efficiently query across data sets to quickly get the information they need with no programming requirements or wait time. In addition, because all of the records are linked, all changes are reflected right away. when the user wants to subtotal, or filter on any of the fields. This dynamic updating also allows for better integration with third party tools which can be used for analysis and for running consolidated reporting.

The data cloud is a great choice for asset management teams with a data warehouse that are seeking connectivity with client portals, CRM, and business intelligence tools.

For more information on Archer’s data access options, view our overview here.

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Archer has been a partner to the investment management industry for more than 20 years, and during that time, we have seen investors’ preferences around personalized portfolios evolve. Today, more and more investors are looking to build portfolios that can be optimized for after-tax returns, enable increased control over factor exposures, and align with their values. For asset managers looking to expand distribution, offering these products can also be a differentiator as they tend to better align with client-centric, fee-based investment advisor models.

Technology is revolutionizing how asset managers can provide customization cost effectively and at scale, and there are several pathways your firm can take. Here are a few ways we’re seeing our clients successfully bolster the way they offer personalized investments.

AVENUES TO ACHIEVE PERSONALIZATION

To offer truly personalized investment options, asset managers need to start with the right type of account. In addition to traditional SMAs and model portfolios, three types of investment vehicles that we are seeing grow in popularity are direct indexing, models of models, and multi-sleeve accounts, all of which offer unique attributes and benefits:

• Direct indexing: With direct indexing, like with other types of SMAs, investors purchase individual equities instead of investing through a mutual fund or ETF. This structure enables investors to simply track an index or customize to manage taxes by harvesting tax losses or modifying to meet personal preferences. These strategies have taken off with index managers who are looking to meet tax optimization needs. By 2027, direct indexed AUM is expected to more than triple to $1.47 trillion, roughly 1% of total AUM.² Nearly half of asset managers expect to add individualized indexing solutions to their offerings.²
• Models of models: Models of models combine distinct models within different custodian accounts to create a single investment strategy, which can be customized for investor preferences and tax optimization. This structure enables asset managers to include both equity and fixed income investments to create a single diversified account where performance and reporting are tracked at the strategy level.
• Multi-sleeve accounts: These accounts enable investment managers to deliver multi-asset strategies by holding distinct equity models and fixed income holdings in a single custodian account. Multi-sleeve accounts are similar to models of models in that they are built using a combination of equity and fixed income investments, but they are held in a single custodian account that contains different sleeves. This structure allows for personalization and reporting at the account and underlying sleeve levels.

WHICH ROUTE WILL YOU TAKE?

In recent years, our team has been working with asset managers to help them identify which strategies best meet their clients’ needs and how to bring them to market in a manner that enables them to scale. In addition to technology, it is critical that sponsors, asset managers, and service providers align on how products will be delivered, including workflow processes, asset allocation, and reporting.

Offering true personalization can serve as a powerful competitive advantage for asset managers seeking to grow market share and attract new investors. Doing so will require them to adopt new technology and new ways of thinking.

Leveraging the right technology and support provider is a key success factor for asset managers seeking to provide true personalization while continuing to offer a diverse range of investment types, including separately managed accounts (SMAs), direct indexing, models of models, and multi-asset strategies.

Before investing time and resources, it’s important for asset managers to partner with a technology and support provider who can empower them with the tools and guidance they need to accomplish their goals. Working with the right partner will provide clarity, confidence, and, ultimately, greater success.

Download a PDF version of this article here.

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Now, as more sophisticated data solutions, including artificial intelligence (AI), data analytics, and cloud access become available, many asset managers are considering how to harness these solutions, what challenges they might face, and how these solutions can unlock growth in the future.

THE EVOLUTION OF DATA ACCESS

Over the last decade, investment managers have increasingly looked to data to identify trends, make decisions, and measure success. Today, sophisticated investment management data has become more accessible than ever before. It’s much more viable to store large amounts of data than it was even five years ago, and as the cost of storing data has gone down, volume has gone up. Now, with increased data capabilities, there is opportunity to utilize it in new ways to anticipate client needs, inform an enterprise growth strategy, and potentially increase alpha.

But what does this mean for the ways that asset managers are accessing their data? In the past, a common workhorse of data access is through file delivery. Just like the fax machine revolutionized communications in its day, SFTP file delivery did the same. But with larger and larger datasets available and consumed, this method has become cumbersome. Cloud data storage greatly reduces the friction of data access by eliminating the delivery aspect. Managers may now access a complete dataset when they need it and change what data is used without building separate files or middleware processing.

With greater access and superior tools enabling new, higher value applications, many asset managers are optimistic about the impact that data can have on their ability to grow. In fact, in a recent study done by PwC, 60% of business executives said digital transformation was their most critical growth driver in 2022.¹

For those looking to further leverage data, here are four ways asset management firms can use their investment data in conjunction with other data sources to fuel growth:

1. Gain a more comprehensive picture of sales efforts

Managers today are seeking to integrate data into their customer relationship management systems to gain greater clarity on the products and services that are driving the most revenue. They can use data to provide a better understanding of where their sales teams are most effective and which products and services are driving the greatest share of revenue. With this information, asset management firms can intelligently allocate resources to the most profitable areas of the business. They can also better determine which areas are not generating enough value and make smarter decisions about future product offerings.

2. Compare different product types and strategies

When asset managers have multiple products that are serviced through different systems, integrating data sources can help managers gain greater visibility that enables superior customization and the ability to identify overarching trends. For example, when data from mutual funds, SMAs, and trust accounts are all brought into a single data warehouse, managers can more easily compare different product types and strategies. Creating a holistic viewpoint of data through seamless integration is key to identifying valueadding insights. A recent report from Deloitte explains this concept well: “To turn insights into opportunity, data from vendors and data provided to partners and clients can be merged and reconciled across reporting domains for a more accurate and detailed perspective that spans functional domains and share classes.”²

3. Meet compliance requirements

Investment compliance monitoring is a critical responsibility for asset managers that relies on access to accurate information. New compliance monitoring software ensures this process is cost-efficient and effective, enabling investment management teams to layer in data from multiple sources so compliance teams and systems are armed with higher volumes of highly reliable information. Asset managers can leverage superior data to enhance these capabilities in ways that not only spot violations, but identify areas where greater oversight is required.

4. Create the next generation of personalized investments

Personalized investments have historically ruled out certain sectors or investment types based on investor values or preferences. Today’s data solutions enable investors to go beyond negative screening to add in specific investments that align with their desires. Artificial intelligence capabilities take this a step further by analyzing investor preferences and recommending additional investments based on them. Managers can also benefit from integrating publicly available data sources with in-house and third-party datasets using natural language processing technology, which provides even more information for investment decision making.

LET DATA GUIDE YOUR GROWTH

As the asset management industry continues to evolve, managers today must take proactive steps to take advantage of new tools that can power their growth. Data is key to investment management, and it’s important for managers to be able to access the data they need in formats that align with their business.

Archer provides investment managers a variety of options for efficiently accessing data and, for each option, a variety of data sets and underlying fields to help asset managers customize the data in the way that best serves their business needs. Our experts can also provide asset managers with the guidance and advice necessary to make the most out of your digital transformation. When navigating your next phase of growth, allow data to show you the way.

Download a PDF version of this article here.

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This change might feel familiar, as it was not too long ago that the industry moved from T+3 to T+2; 2014 in Europe and 2017 here in North America. Now, with some bond markets already at T+1, and some equities at T+0, some operations teams are on track. For others, though, it will require a change in process as well as technology to support the requirement.

As Archer works across all asset classes with many different types of asset managers, we already have some clients using T+0. For background, challenges, and best practices, we spoke with Bill Wright, Archer’s Executive Vice President of Service Delivery, to get the 411 on T+1.

WHY THE CHANGE TO T+1?

Besides enabling investors to access securities transaction proceeds sooner, moving to T+1 also supports risk mitigation. Changes in intraday margin calls during periods of volatility can greatly impact firms, and liquidity can be strained as members draw down credit lines and increase liquidity buffers. Time to settlement creates counterparty risk, and the margin requirements designed to mitigate those risks can create costs.

The industry believes that moving to a T+1 settlement cycle will increase the overall efficiency of the securities markets, mitigate risk, create better use of capital, and promote financial stability. I believe it is important to strike the appropriate balance between increasing efficiencies and mitigating risk.

HOW DOES THIS CHANGE IMPACT ASSET MANAGERS?

Today, the affirmation timeline is set at 11:30 AM ET on T+1. In order to meet a T+1 settlement cycle, this time will need to change to 9:00 PM ET on trade date. Both U.S. and non-U.S. institutional investors will need to adopt processes and behavioral changes to meet this new cutoff time.

HOW IS ARCHER PREPARING FOR T+1?

Currently, even though settlement requirements are T+2, Archer matches the majority of trades (95%+) on trade date. Archer is currently engaged with DTCC to look at adding to the product set with their auto-affirm capabilities to further streamline the process.

While currently in production in a limited industry scope, Archer is conducting preliminary analysis on their “Match to Instruct” product (M2i) within Central Trade Matching (CTM). This will essentially take the matched transaction in CTM and submit it as an affirmed confirm into the settlement cycle at the DTC, removing manual touchpoints.

HOW CAN OPERATIONS TEAMS PREPARE FOR T+1?

• Based on our current conversations with clients and our experience transitioning from T+3 to T+2, we are sharing some best practices for asset management operations teams planning for T+1.
• Review your broker list to ensure that the brokers you work with are prepared to meet the T+1 guidelines. This will ensure sufficient coverage to meeting tighter deadlines, accurate processing, timing responsiveness, etc.
• Ensure that your SSIs are updated, and that commission tables and fees for international (VAT) are accurate and reconciled to your execution partners. Doing so helps prevent unnecessary delays in booking and settling trades.
• Evaluate timing of trade flows to determine if there is an opportunity to increase efficiency on your trade desk and with your order management systems. This will also help to ensure compliance with the affirmation timeline change from 11:30 AM T+1 to 9:00 PM on trade date.

The realities of a T+1 execution and settlement process will require rethinking trade execution, processing, financing, payments, and settlements. As we have in the past, Archer will continue to evolve technology and processes to stay ahead of these types of regulatory changes to ensure a seamless transition for all of our clients and their counterparties.

Download a PDF version of this article here.

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1. Performance declines across asset classes

Most of us are well aware of equity market’s substantial declines in 2022. The Morningstar U.S. Market Index lost 19.4% in 2022, leaving the stock market with its biggest annual loss since 2008. A big difference in 2022 compared to recent years was that investors couldn’t find respite in the bond market. With seven interest rate hikes throughout the year, 2022 was the worst year for fixed income in decades. The Morningstar U.S. Core Bond Index—which reflects a broad cross section of the government and investment-grade corporate bond market—lost 12.9% in 2022, its biggest annual loss in its performance history starting in 1999.

We also witnessed an increasing gap between the best and worst performers. Asset managers in the top quartile outperformed their peers in the bottom quartile by 29 percentage points, relative to gaps of 19 to 20 percentage points in the last two years.¹

2. Reduced AUM

Assets under management for the U.S. fund business, including conventional funds and ETFs, declined $5.5 trillion in 2022 from $34.75 trillion at year end 2021, to $29.22 trillion at the end of 2022. Most of these declines can be attributed to market losses, not outflows.²

US FUND BUSINESS TOTAL NET ASSETS ($TRILLION) 2021 VS. 2022 BY ASSET TYPE

Source: Refinitiv Lipper, an LSEG Business.

3. Increased costs

Industry costs have increased by $71 billion over the past decade. In a recent paper, McKinsey identified these four categories as the largest areas of cost growth:

• Investment management ($28B):
  Headcount to launch new strategies and meeting increasing demand for customized investment strategies
• Management and administration ($12B):
  A large portion of this came from hiring senior leaders to help grow and evolve the strategies at firms
• Technology ($11B):
  Systems and software to support complex investments, upgrades to legacy technology, and digitizing operating platforms
• Sales and marketing ($9B):
  Hiring to meet the needs of new audiences

PREPARING FOR MARKET UNCERTAINTY

Given the challenges of managing reduced AUM and increased costs while offering products that align with changing investor needs, asset managers are seeking new ways to create efficiencies in their business. With all these pressures, how can asset managers best allocate their resources to prepare for what lies ahead?

Diversify your product offerings: Asset managers positioning themselves for success are focusing on more comprehensive solutions that produce a desired outcome for their investors as opposed to a single type of return. These solutions can take the form of managed accounts, multi-asset strategies, or advice delivered as a fee-based service. When uncertainty and volatility are present in the market, demand for solutions-oriented offerings has typically risen alongside it. Volatility is expected to continue in the months ahead, which could continue to drive interest in total portfolio offerings, like model portfolios. MDAs (multi-discipline accounts) are useful in these environments for their ability to enable asset managers to offer one investment that goes across asset classes and across strategy types.

Invest in a scalable operating platform: A scalable operating platform will be critical to asset managers as they seek ways to manage costs, make data-driven decisions, and deliver products across asset classes and in customized ways. Today’s inflection point is a good time to reassess whether your operations are positioned to support growth. Asset managers should be proactive by taking stock of which functions can be handled in house while outsourcing others that are better managed by service providers in ways that can save time and cost as the business scales.

Focus on personalization: Investors are increasingly demanding control over their investments. Separately managed accounts, model portfolios, and even “supermodels” that use technology to combine different model portfolios are increasingly appealing for their personalization capabilities. In addition, asset managers should look at technologies that allow portfolio customization at scale, as these capabilities will enable asset managers to offer advanced portfolio solutions to smaller clients, including retail investors.

NAVIGATING CHOPPY WATERS

It’s crucial for asset managers to remember that challenging environments are often the times that produce opportunities for future growth. Identifying and capitalizing on these opportunities will require managers to adopt a new set of tools and mindsets to gain a competitive edge. However, it’s important not to go at it alone. Working with the right service providers that not only offer value-adding technology, but the perspective and expertise needed to navigate this environment will be crucial to the industry’s success.

Download a PDF version of this article here.

The post Choppy Waters Ahead: How Asset Managers Can Find Opportunity in Today’s Market appeared first on Archer.

As an industry, we faced our share of challenges – market volatility, rising inflation, interest rate hikes, changing regulatory rules, and a rapidly evolving job market – leading many of our clients to shift focus, navigate client expectations, and find opportunities to minimize losses. At Archer, we found that activity overall was very high, demonstrating that we are all hard at work to help our clients survive the ups and downs that the year presented. In fact, our team saw tax loss harvesting requests more than double the prior year’s as asset managers worked to find some silver lining in the challenging market.

Opportunities also presented themselves for those who knew where to look. For example, as investors continue to seek increased customization, particularly tax management, some asset managers found success developing customizable SMAs and direct indexing investments, and many institutional managers found appetite for their investment strategies across multiple channels. Others found that outsourcing operations was a good way to keep costs more predictable.

At Archer, we focused on evolving our solutions to meet all of these needs. We continued to enhance our technology platform and brought on some great talent at all levels, including our Service Delivery team, Client Experience team and our Board of Directors. We remained committed to living out our core values, our companywide guidelines that help define the way we work with one another and with our clients. By holding ourselves and each other accountable to each of these values, we were able to deepen our relationships across the industry and deliver the level of service that our clients need to succeed.

Looking back on the year, the highlight for our team was getting to spend time with all of you. Industry events were back in full swing, and our team had a great time seeing clients, peers, and friends at the conferences, out on the golf course, and coming together to support an important cause with Expect Miracles. A personal highlight was seeing so many of you at our cocktail party at the MMI Annual Conference in October – it was great to be reunited with familiar faces and meet some of our newer Archer clients!

On behalf of the entire Archer team, I wish you a healthy and happy 2023. We look forward to seeing what the year ahead brings, and to working with so many of you.

All my best,
Bryan

The post CEO Note: 2022 In Review appeared first on Archer.

While direct indexing is nothing new, it has become a hot item in the industry over the past few years. Assets doubled between 2019 and 2020 and have continued to grow in the years that followed. Looking ahead, McKinsey expects direct indexing volume to grow to more than $430 billion as asset managers launch new products to meet investor demand.

WHAT IS DRIVING DIRECT INDEXING GROWTH?

Direct indexing strategies have grown in popularity as investors increasingly prioritize having control over their investments. These strategies offer a more flexible and personalized approach to investing in broad indexes and even allow for the implementation of individual ESG preferences. Additionally, with hundreds of individual stocks held in a direct indexing portfolio, there are extensive opportunities for tax loss harvesting. Direct indexing portfolios – along with other SMAs – can take full advantage by harvesting losses in underperforming stocks, which is a popular approach to maximizing losses in down markets.

In today’s bear market, tax loss harvesting has ramped up as investors seek to offset gains with this year’s losses. In fact, at Archer, we have seen nearly double the amount of tax selling requests 2022 as compared to in 2021 . Certainly, as tax optimization remains top of mind for investors direct indexing will continue to take center stage. New technology is also fueling adoption. In the past, direct indexing required labor-intensive management and trading across portfolios. But today’s digital investing platforms and fractional share trading capabilities have made direct indexing more accessible to mainstream audiences. With technology like Archer’s doing the heavy lifting, more asset managers can offer personalized investments at scale and launch their own offerings.

GETTING DIRECT INDEXING OFF THE GROUND

As direct indexing gains traction in the market, we are seeing an increased number of asset management firms looking to launch their own products. Many firms that are primarily focused on equities are eager to enter the direct indexing market but are not sure where to start. Should these products be sold by the same teams that are selling their active strategies? What are the implications for technology? How do they stay competitive and get noticed? For those managers, here are a few considerations:

1.  Understand that it’s a different sale: The team that sells your active strategies might need to shift their approach when selling direct indexing products. Direct indexing is relatively new, and sales teams need to be prepared to properly educate advisors and clients on how it fits into a portfolio. Generally speaking, direct indexing strategies don’t necessarily take the place of other investments, but rather complement traditional portfolios by enabling higher levels of customization.
2. Think about the up-front experience: Consider how to set appropriate guardrails around the level of customization within portfolios. For instance, is the customization taking place at the advisor level or should that be done at the asset manager level? You will also need to set expectations around how performance will be measured, particularly if the objective is tax management, to ensure clients fully understand how their preferences and customizations are impacting their investments.
3. Consider how you will service it: New technology can enable trading of fractional shares, which is critical to creating direct indexed products. But there may be technology limitations among other players in the ecosystem that may need to be considered as you determine what support services and tools you will need to drive adoption and keep clients satisfied.
4. Plan ahead to scale: Any new successful offering will need to have a clear pathway to profitable scale. This is where technology can help drive efficiencies and keep costs manageable. Asset management firms will need to ask themselves what level of service they will provide for smaller accounts as well as how they will deliver advice at scale. Adopting technology that frees up managers to spend time on client-facing, revenue generating activities will be crucial to success.

DON’T GO AT IT ALONE

When launching a new product, it always helps to have access to tools and expertise that can anticipate and solve problems before they arise. Direct indexing is no different. As adoption continues to grow, new technology solutions have emerged that make servicing, managing, and scaling these accounts a much more seamless and profitable endeavor. All firms looking to get started should consider partnering with a tech and solutions provider that can help them through this process. In the end, it could make a critical impact in launching a successful direct indexing offering.

The post Four considerations for active managers launching direct indexing strategies appeared first on Archer.

Many resources have surfaced on the similarities and differences between the old and new rules, as well as guides to how managers can best implement the necessary changes. As a data and reporting resource for asset managers, we’ve been following these rule changes and what they mean for the industry. Below, we are sharing three things all asset managers need to know about how the new rule impacts GIPS reporting and how technology and service providers can help your firm implement these changes.

1. The new requirement: Firms that claim compliance with the GIPS standards are required to provide GIPS composite reports to new business prospects. Under the new rule, the SEC views GIPS reports as advertisements. As advertisements, firms must update what their GIPS composite report shows to abide by the more prescriptive framework for presentation of performance.
   • Firms must present net of fees performance.
   • Firms must show 1-, 5-, and 10-year returns. If a composite did not exist for a required time period, then the firm must also present performance since inception for the composite.
2. The exception: Under the rule, GIPS composite reports may stay the same as-is, as long as they are presented alongside marketing material that includes the performance detail noted above.
3. How to comply: Managers that plan to present their GIPS composite report without the inclusion of other marketing material will need to update their GIPS report data. Flexible reporting software can help managers create new reports to show net of fees performance. For example, Archer’s reporting capabilities enable asset managers to show net of fee returns, both cumulative and annualized, for 1-, 2-, 3-, 4-, 5-, 6-, 7-, 8-, 9-, and 10-year periods and since inception. Asset managers on Archer’s platform can create GIPS composite reports that comply with the modernized SEC marketing rule using a single Archer report.

At Archer, we’re keeping our ear to the ground on new regulatory developments and making updates to our offering to ensure our clients can easily remain compliant. For more information on how Archer can assist your firm in establishing a monthly composite review process tailored to your needs, please contact your Relationship Manager, or reach out to us at archerassistant@archerims.com.

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Evolving Client Demands

Better meeting client needs requires both creativity and insight into what investors are seeking. While many asset managers have espoused the mantra of “build it and they will come,” some are beginning to rethink the ways they meet client needs and doing more sophisticated market research.

“Some of the best offerings are not products, but solutions,” said Russell M. Parker, CIMA, Founder and CEO of rpmAUM, a provider of custom product, brand, and distribution solutions and an Archer strategic partner. “It’s important to understand the need in the market and focus on outcomes for the client.”

Through ongoing conversations with our asset manager clients, it has become clear that industry innovation is impacting not just the types of services firms are able to provide, but how services are delivered to clients. “We are seeing that many of the asset management firms we work with want to better understand client needs and wants so they can better serve them,” said Jessica Frost, Head of Client Experience at Archer. “In terms of what investors are looking for, there are a few common themes that continually arise: expanded investment options, ease of access, and transparency.”

Expanded investment options: Asset managers are going beyond offering more of the same products, and are looking to provide access to differentiated investments, including digital assets and unique tax management platforms.

Ease of access: Investors want a variety of investment products to be accessible through the channels and in formats that are easy to understand and convenient for them to access.

Transparency: Beyond visibility into individual fund performance, investors want to know exactly how their position in a fund affects the performance of their entire client portfolio.

New Avenues of Innovation

Meeting expanding investor needs requires creativity, discipline and, most importantly, a commitment to client experience. “There’s lots of pressure right now for asset managers to be ‘format agnostic,’ but innovation is more than repackaging current capabilities into something new. Innovation is about making sure you are well positioned to solve for what the customers need – an ask that is made more complicated when you also take into consideration needs of distributors, advisors, and the ultimate investor clients. Innovation means rethinking who benefits from what and responding with a market-driven value proposition,” said Parker.

Indeed, rather than pushing to be first to deliver a flashy new service, asset managers are looking for ways to add meaningful value. One challenge that asset managers can face when coming up with solutions is that they must meet the varying needs of the entire investment continuum. The financial services industry is such a tightly integrated ecosystem that one party can only innovate so much on its own before hurdles arise. For example, outdated legacy technology is still fairly prevalent across the industry, which can hinder the ability to offer truly innovative solutions in an integrated, seamless manner. Rather than being limited by the challenges that will inevitably arise, asset managers must stay committed to understanding the available options and, in some cases, disrupting the status quo to drive progress.

Partnerships that Enable Growth

Asset management firms have enough to do when it comes to navigating challenging markets, delivering top level client service and growing their business. Many are choosing to partner with firms like Archer because by outsourcing operations, they can dedicate more focus and staff to building thoughtful strategies, communicating regularly with their clients, and helping them understand how all of their investments are working together. Partners can also help provide guidance on measures other asset managers are taking to meet client needs.

“We enable our clients to innovate and focus on client experience by allowing them to grow without worrying about adding headcount or upgrading technology so they can spend more time servicing their investors and building out a better experience,” said Frost. “Additionally, we provide them with data that can help them better understand their client base – which markets are they most successful in, or which products are resonating in different channels – so they can make decisions backed by numbers.”

The Nonstop Pursuit of Innovation

Innovation is what drives our industry forward. It’s what keeps investors excited and elevates how the industry serves clients. The leaders in asset management will be those constantly seeking progress and a better way to meet client needs. Looking ahead, the premium placed on the core asset management capability will only increase. Access to technological support and expertise will become critical as the rate of change continues to increase. To achieve success in today’s crowded asset management space, working with a technology partner that’s keeping pace with the evolution of the industry to allow your investment team to focus on its core, revenue-driving capabilities will be essential.

The post The (C)X Factor: Pursuing Innovative Solutions to Meet Client Needs appeared first on Archer.

As revenues fluctuate alongside recent volatility in the financial markets, many asset managers are looking for ways to stabilize costs. While there’s no way to tell where markets or employee demands will go, asset managers can keep costs predictable by outsourcing non-core functions, such as operations, and focusing more on generating revenue. Doing so can be particularly powerful for managers who have spent the last few years in asset-gathering mode and, as a result of new business, have less time to focus on managing day-to-day operations.

For example, we recently spoke to several executives at an asset management firm who were looking to outsource all non-investment-related functions — a stark change from their past preference to manage all operational tasks internally. Their goal in partnering with a service provider to manage operations was to leverage their existing staff more strategically in roles focused on core, revenue-generating functions.

Other asset management firms are looking to maintain business continuity in the face of increased turnover. Working with a service provider for operations helps reduce challenges around recruiting, onboarding, and training. It also reduces “key person” risk that might arise if there are only one or two individuals on the team who are able to perform certain functions.

With the job market in a continued state of flux, outsourcing certain functions can provide asset managers with an area of clarity and consistency. Technology and service providers are better equipped than ever to handle these requests and are growing their role as an integral partner to firms seeking growth.

Download a PDF version of this article here.

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