As an investment advisor, there are three pillars that support your practice: portfolio management, distribution, and operations. One support–operations–is uniquely tied to client service. Since an advisor’s core responsibility is keeping existing clients happy and obtaining new ones, maintaining constant focus on the operations side of the business is vital (see Mark Tibergien’s column). The only problem is that most advisors did not get into the business to run the operations side but rather to manage money and gather assets. Advisors are nevertheless faced with the overwhelming and time consuming job of becoming back-office experts as well.
Portfolio management systems are a critical business operations component. But how do you know if your current system is the best fit for your practice? The field of providers (including my company) spans the spectrum, including long-time players and startups, and the range of solutions is equally varied. Options range from in-house technology solutions that run on the advisory firm’s network to off-loading the function to an outsourcing partner who provides both technology and staff.
We will lay out the key questions that you, the advisor, should consider if you want to take your firm’s client service to the next level and are in the process of selecting a new portfolio management system.
Listing business needs in terms of what is important to the advisor and to the advisor’s clients is an important first step. Use that list to prioritize the most pressing areas. Avoid limitations and think creatively; there are plenty of solutions out there. A good solution should fill in any gaps in the firm’s service model, keeping functionality and reporting clear and simple. The following sample questions will help begin the prioritization process:
- Does the system interface with my custodian(s)?
- Do I need to supply clients with realized gain/loss reports?
- How can I best report performance to my clients?
- Will the system calculate AIMR-compliant composites?
- Can the system help my staff ease the new-account process?
- Will the system help ease advisory fee billing and collection processing?
- Can the system provide advisory fee payout information (sub-advisors, broker/dealer overrides, soliciting representatives, etc.)?
- Will the system help me trade my client portfolios?
- Can the system help me promote my firm’s image (i.e., marketing)?
- Is the system accessible to me and my staff via the Internet?
- What are the hardware and staffing costs associated with working with the system?
- What do I need to do to back up the system and keep it secure (business continuity plan)?
- Does the system take care of the compliance reporting requirements for my business?
- Will the system allow me to focus on money management and gathering assets rather than operations?
The way your PMS system works–or doesn’t–with your custodians is crucial. Strike from your requirements those reports and information custodians are already providing clients to avoid redundancies and extra costs. It is imperative to be able to easily transfer client data into and out of the portfolio management system, so interfacing with current or future custodians is crucial. The vendor should explain to you the process of bringing on a new custodial relationship and list the interfaces the portfolio management system supports.
Ease of extracting and adding client data will be significantly enhanced if the system is built on a “relational database,” making it possible to query data in the system and run business-specific reports to support your client relationship model. Systems built on Microsoft’s SQL Server or an Oracle database should provide such functionality.
Be sure the database hierarchy supports the advisory firm’s client relationship model. Find out how the system ties information from multiple accounts across many custodians. The database hierarchy and structure of clients, registrations, accounts, assets, and transactions affect generating reports that are consistent with client relationship models.
Using the Data
Once the data is in the system, how can it be used? Many advisors use their portfolio management systems to capture or warehouse data from their custodian or brokerage platforms. The challenge is finding a system that does more than that. Some practices use “side reporting systems,” like an Access database, in addition to a portfolio management system. The optimum choice of systems should capture a variety of needs into one holistic solution. Running two or more databases is difficult, expensive, and inefficient.
Financial planning tools or software, a contact management system, and accounting software must all work with the chosen portfolio management system as well. A system should either contain its own solutions to these types of functions, or at least interface and run side-by-side with them. It should be user friendly. The data entry screens should be organized for quick and efficient keying and searching. Be sure the system can work from spreadsheet imports and support custom fields. When considering an outsourcing partner, make sure it is possible to interact with the outsourcing company’s data. If not, time will be wasted verifying that the vendor has made simple account maintenance updates.
Owning the Data
The question of who really owns and controls client data is often viewed by advisors only from the perspective of where the data server is located. However, to fully address data ownership, it’s important to broaden that viewpoint to include the following control and ownership questions:
- Will the portfolio management system contractually allow for retention of ownership of the client data?
- What will it take to convert the data from the portfolio management system to a new system, and is that process outlined in the contract?
- Is the agreement made directly with the portfolio management system provider or is my company accessing the data through a broker/dealer’s or custodian’s agreement with the system provider?
Advisors need to ensure broad consideration is given to the contractual relationship with the portfolio management system so they retain true ownership and control of their client data. Advisors need to make sure the vendors will supply data to them in a useable format. This becomes especially important if at a future point you decide to change your PMS system.