There’s no doubt that automation is the best way to eliminate last-mile risks. Automating the last mile is easy and cost-effective. There are lots of options. You can develop in-house software, purchase and install on-premises applications, or sign up for cloud-based services.
No matter which approach you choose, make sure your automated solution:
Operation due diligence staff at asset owners—and their consultants—have become aware of last-mile issues at investment management firms, and many are now asking asset managers probing questions about how they handle the last mile.
Our advice: Forewarned is forearmed! Don’t let your firm be caught off guard by inquiries into your last-mile policies and procedures. Your marketing/operations staff should be able to answer the three questions below, address any flaws in their processes and procedures, and craft good answers for use in DDQs/RFPs and client/consultant meetings:
Your firm’s reputation. And when an investment firm’s reputation for accurate, reliable reporting is called into question, revenue-producing AUM takes a direct hit. Reputational risk stemming from regulatory missteps is a given. But operational risk can be just as damaging—and more insidious.
There’s no crying in baseball— or in investment management. Not with the SEC calling the game. These 3 rookie errors are easy to make and could cost your investment team the Series:
Being monitored by the new, more aggressive SEC.
And they’re all about monitoring managers these days. Consider this:
Regulators don’t like sloppy operations. Inadequate internal processes lead to performance-reporting mistakes in marketing and sales documents. And a pattern of operational mistakes invites regulatory scrutiny.
No CCO wants that.
People. Your people. All those hard-working, well-meaning folks who support your firm’s marketing presentations.
And every one of them is just a fat finger away from making a last-mile mistake.
And that’s a problem for you as compliance professional. Because while to err is human, regulators don’t care. And they aren’t likely to be forgiving, either.
Consider these 2 common human-introduced data errors:
Every CCO’s worst nightmare is the unidentified compliance problem waiting to happen.
The National Society of Compliance Professionals, the Investment Adviser Association and the CFA Institute have highlighted one of them: The Last-Mile Problem. As the IAA Newsletter’s Compliance Corner noted:
“[The last-mile problem] should be on the radar of chief compliance officers at investment advisory firms. By neglecting the last mile, investment advisory firms leave themselves susceptible to a variety of very real risks in a part of their reporting process that regulators are focused on: marketing presentations.”
Automating the last mile of your client reporting and marketing presentation process is our recommended course of action. But if your firm isn’t there yet, here are some steps you can take to help identify and correct manual errors in the meantime:
1. Use checklists.
Having a checklist of all the tasks that must be completed is a best practice for any manual process.
- Keep the checklist long enough to be meaningful, but short enough to be manageable.
- Have people sign and date the checklist.
- Keep checklist in a central location — not an email thread.
- Save the checklist with the materials produced.
With input from Richard Kerr of K&L Gates LLP, and Amy Jones, CIPM, of Guardian Performance Solutions LLC
The investment management industry has automated almost every aspect of its operations over the last several decades: portfolio accounting, performance calculation, pre-trade compliance, order management and trading, analytics, CRM and, more recently, portfolio risk modeling.
But when it comes to pulling all this data together to tell a cohesive story to existing and prospective clients, most investment managers are still operating in a 20th century tech environment, relying on a hodgepodge of spreadsheets and manual calculations to create and publish marketing and client reporting materials.
We call this the “last mile” problem, and it’s a big one. In this paper, we take a hard look at the last mile problem: how it manifests itself in most asset management firms; the operational, regulatory and legal, and reputational risks it poses; and how managers can use technology to fully automate their marketing materials and client reports, and generate error-free communication of investment results.
KEY TOPICS CONSIDERED
Origins of Last Mile Problems