Ripening: Evaluating Effective-Growth Solutions

Wealth is on the upswing, specialty investment opportunities abound, and access to market information is prolific. Changing strategies and investor mobility force structural and procedural refinement. Congratulations! The investment business is now more complex than ever.

As I work with investment managers across a spectrum of products, channels, and styles, I consistently see forward-thinking managers whose business goals are stymied by the challenges of supporting the complexity of our business. Managers are delivering on the promise of investment results, but are concurrently in a frantic race to grow AUM, expand product offerings, wade through oceans of market data, and keep operating costs within reasonable limits.

Meanwhile, sticky systems and longstanding entrenchment in processes that were built over years are two very strong motivators of resistance to changing the investment management business support model. But despite what many investment management system architects and service providers will tell you, a complete overhaul of systems and processes is not requisite for successful growth. In fact, ‘overhaul’ recommendations often fail to holistically address core concerns such as recon, seamless processing, workflow management, compliance and security.

That said, investment managers are challenged to identify which changes will make the greatest impact and – more importantly – how to evaluate when the time is ripe for meaningful change. An entire industry of consultants is available to provide infrastructure analysis and vendor recommendations, but before going there, perhaps a few pointers based on our experience can help.

- Know thyself. We’ve seen very successful managers serendipitously fall into top-line growth opportunities such as new products introduced via a brokerage or custodian relationship or a new category of investors introduced by a portfolio manager. Alternatively, we’ve seen managers slashing people or product lines in an effort to grow profitability but with only a vague comprehension of their cost drivers. Understanding the ways in which your firm has grown, and evaluating the intrinsic value (defined by economist Benjamin Graham as that value which is justified by the facts) of your component processes will help in creating a forward-looking growth model for your firm.

- Circle the wagons. Having identified growth opportunities, circle the wagons of your internal teams and vendors to identify the current ‘pain’ in your support infrastructure and the tactical hurdles to growth. For example, a reconciliation process built for institutional accounts is not likely to be scalable if the growth plan adds retail accounts. An exponential growth in diversified assets may – or may not – be easily accommodated by your current staff and systems architecture.

- Close the gaps. Here’s the interesting part where the investment management system architects and service providers enter the fray. Most have vertically integrated product sets, such as an order management and portfolio accounting system, a performance reporting engine, and a reconciliation tool. Most offer separately licensable products that plug together to simulate an integrated investment management suite. Stress test these against the growth plan. Will new investments be easily supported? Will everything scale, at reasonable cost, to fit your growth? And, finally, will your current process pains and tactical hurdles to growth be resolved?

It bugs me to see investment managers unstick their systems and supplant trusted processes only to discover that while a new solution may resolve existing issues, its scalability across channels and products and its connectivity to critical partners and packages is limited. Unfortunately, full fitness-for-growth is often unexamined or not fully disclosed by some vendors.

I spend a good amount of time with investment managers helping them prepare to meet these types of challenges and a large part of the conversation is centered on the cost-benefit analysis of timing, context, and content of fit-for-growth change. We believe there is simple solution to the growth challenge. Rather than fit an investment management business to the solutions offered, investment managers can instead work with a change catalyst partner that is willing and able to fit their solution to the investment manager’s business, and to time implementations to coincide with the manager’s growth plan.

At Archer we believe that your assets, not your systems, should be sticky and that your clients, not your processes, should be entrenched. So we’ve built sensible, scalable and timely solutions for investment managers seeking effective business growth, regardless of whether it be from the top or the bottom line.