By Brian Durbin, Managing Director of Operations
All investment advisers have an asset target in mind. In order to reach that finish line, you need to have a solid vehicle. Having a qualified portfolio manager (i.e. the driver) is a large part of the race, but it is certainly harder to accomplish without efficient and effective systems and processes in place. A streamlined and prepared operations department will help take you the extra mile.
These days, there is no shortage of new regulation and technology to keep the operations departments of investment advisers on their toes. In order to fluidly maneuver through a changing landscape, it might be helpful to think of operations as a rally car. Here are five points to help visualize this reference.
Wear protective gear
Race car drivers know the importance of wearing helmets and harnesses to prevent injury in the event of a crash. The unexpected can happen. In investment operations, a technology glitch can create a trade error or an inattentive worker can input the wrong data. Risk controls and flags should be present in any adviser operations. Insurance products such as Errors & Omissions (E&O) can help provide financial protection.
Remove unnecessary weight
In order to maximize speed, race cars are stripped down to be as light as possible while maintaining safety and function. Operations departments should be lean as well. However, there is a fine line. Too light and you might tip over if you need to adjust quickly. You want to be nimble in case you need to build up. The key is designing systems and processes that are easily scalable so the addition or removal of an employee, group of accounts, etc. does not disrupt workflow.
Inspect and know your vehicle
Racers know their cars inside and out. Similarly, in investment operations a thorough review of systems and processes should be conducted at least annually. Dismantle each process and walk through it step-by-step to determine the weak points. If you do not have the headcount to complete this review, find a qualified consultant. Drivers may have to conduct small repairs or inspections themselves but a mechanic is often on hand as well. Similarly, third-parties provide additional value to the review of operations by removing bias and familiarity which can cause you to miss crucial gaps in processes. By knowing where risks lie and the capabilities of the systems, you will know what protective gear to use as mentioned above.
Use a co-driver
Rally car drivers often have a co-driver sitting in the passenger seat. The co-driver is part navigator, part handyman, and part safety (they counter-balance the weight distribution). For investment operations, compliance, legal, and portfolio management personnel should be integrated into operations to provide information on upcoming regulatory or industry changes that will impact operational processes. Given that the investment industry is ever-changing, being provided with information on the road ahead is valuable.
Prepare for the conditions
Heavy rain, mud, gravel, and other factors can determine the types of tires used during a race. Similarly, different market conditions and business channels can change how an investment adviser views operations. Using the proper systems for the current conditions is important, but preparing for upcoming changes is equally important. If a driver knows the first quarter of a race is in rain, but the rest will be dry, the decision may be to sacrifice better rain tires due to the limited amount of time they would be needed. Likewise, an investment adviser may forego the purchase of an order management system due to expected changes in account type (e.g. moving from discretionary management to model delivery).
Whether you compare operations to a rally car or construct it using another visualization, the key is to see the larger picture and shape processes according to the path your business is on.
All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice or services in any state where to do so would be unlawful. Analysis and research are provided for informational purposes only, not for trading or investing purposes. All opinions expressed are as of the date of publication and subject to change. Astor and its affiliates are not liable for the accuracy, usefulness or availability of any such information or liable for any trading or investing based on such information.