asset management - improving cost / income...
TRANSCRIPT
ASSET MANAGEMENT
Improving Cost / Income Ratios Through Technology
December 2003
ASSET MANAGEMENT IMPROVING COST / INCOME RATIOS THROUGH TECHNOLOGY IMPROVING COST / INCOME RATIOS THROUGH TECHNOLOGY Introduction Asset managers have experienced significant downturn over the past three years. Equity markets, globally, have fallen relentlessly leading to lower asset values and reduced transaction volumes, putting enormous pressure on the bottom line. The balance of the cost/income ratio can, however, be corrected by streamlining operations, lowering costs and increasing the productivity of relationship managers through investment in technology. How can technology help improve the cost/income ratio? Here are a number of well established ways: Business Change Impact Creating enhanced customer experiences through “knowing your customer”
Reduces customer attrition and enables customer growth
Ensuring service levels provided are consistent with client profitability
Enables the value of the client relationship to be maximised
Delivery of the service through multiple channels with consistent content and presentation
Reduces operational costs by providing quality services through lower cost channels
Increase product ranges and introduce sophisticated investment strategies
Maintains /increases ‘wallet’ value and may provide additional revenue streams
Improved, timely and accurate reporting of investment performance
Improves relationship manager efficiency by reducing administration overheads and allowing the RM to focus on managing the relationship
Operational efficiency from front to back office Reduction of operational costs by streamlining processes
Table 1 - Methods for improving the cost / income ratio
Challenges faced by senior managers Investment in technology will have appeared on management agendas on a number of occasions. Few organisations have the luxury to start a ‘greenfield’ operation and so most will need to work within the constraints of existing, and perhaps legacy, technology solutions. This is not a trivial exercise. It also raises a number of important questions: • How much will it cost? • When will it pay back? • Do we build, buy or outsource? • How can new technology integrate with existing technology? • What solution design options are available? • Which one is best for us?
2
ASSET MANAGEMENT IMPROVING COST / INCOME RATIOS THROUGH TECHNOLOGY Objectives of this paper This paper takes a close look at the asset management business, discusses the architectural design options and proposes a process for arriving at the optimum architecture for the business. The architecture is optimised to ensure that cost / income ratios are improved not just for current operations but also for future strategic changes. The paper uses the following structure:
1. Asset management business functions (using a generic business model to describe the business)
2. Solution options: o System architecture choices o Build, buy or outsource
3. Determining the optimum architecture framework 4. Putting it all together
1. Asset Management Business Model Figure 1 below shows a generic, high level, business function model of an asset management business segregated into front office, middle office and back office functional areas (definitions of front, middle and back office vary between organisations). The model applies to various types of asset managers including private banks, fund managers and insurers. It is no coincidence that software vendors have also provided a similar breakdown of functions in constructing their systems – typically providing business functionality by way of specialist modules. Quite often these can be sold and then implemented independently of any other software the vendor may provide. Examples include order management, client reporting and decision support (or portfolio modelling) and these off-the-shelf solutions are highlighted in blue.
CRMClient Liaison
CampaignManagement
ProductCatalogues
OpportunitiesManagement
Contact & Client mgmt
Portfolio Optimisation
Market Risk
HistoricalRisk
SensitivityAnalysis
PortfolioOptimisation
InvestmentStrategy
Modelling
Research & AnalysisMaintain Investment
Library
Collate Research Review End-UserFeedback Conduct Research
DistributeResearch
KnowledgeManagement
Research & AnalysisMaintain Investment
Library
Collate Research Review End-UserFeedback Conduct Research
DistributeResearch
KnowledgeManagement
Fron
t Offi
ceM
iddl
e O
ffice
Client Reporting
Income Statements
Tax Statements
SOFA
Client Reports
Decision SupportManage Client
PortfoliosManage bulking
of trades to market
AuthoriseInvestment
Decision Trades
Portfolio Groupings
Focused Trades
Manage TaxEfficiency
InvestmentsTarget
ManagementApproach
PackagedTrades
Compliant Rationale for Trades
Create Models
PortfolioAdministration
Service
PerformanceMeasurement
Report Performance/
Attribution
Calculate Client Portfolio
Performance
Analyse Model’s
Attribution
Calculate Model
Performance
CGT
OrderManagement
Execution
RoutingBulking Allocation
Monitoring
Portfolio Accounting
Accounts
Audit Trails
Cash / Stock Reconciliation
SettlementMonitoringDeal
Settlement SSI
Corporate ActionsVoluntary/
Mandatory Events
Reconciliation
Event Diary
CustodySecurities
AdminOff MarketTransfers
Bac
k O
ffice
Static DataMaintenance
Funds AdminNAV calc Interfaces to
Providers
Cash ManagementMoney
Transmission Interest
Accounting Closures
Fees
Reporting
Risk Reports
Statutory Returns
Exception Reports
Daily Transactions
Trade Entry &Management
Confirmations Charges &Commissions
Contract Notes
PEP/ISA AdminFee & Income
Payments
Dealing/ Transfers
Cash/StockSubscription &
Withdrawal
Dividends/Tax Credits
Diary
Buy, sell, switch
Mgmt Info
Compliance
Post-TradePre-Trade
Figure 1 - Asset Management Functional Model
3
ASSET MANAGEMENT IMPROVING COST / INCOME RATIOS THROUGH TECHNOLOGY Based on the number of standalone high level functions available there are a large number of combinations possible for ‘architecting’ an asset management business. Add into the pot the option of either developing or outsourcing these functions and the possibilities are multiplied. How then do you choose what is right for your organisation? 2. Solution options Below are discussions on two key choices that have to be made. These relate to: • System architecture types • Buy, build or outsource Systems architecture choices In practice, the solutions which have been implemented in asset management institutions can be categorised into a number of systems architecture types, each with their own pros and cons. The table below describes each of them in more detail:
Architecture Types
FO FO FO
MO MO MO
BO BO BO
FO FO FO
MO MO MO
BO BO BO
Inte
grat
edH
ybrid
Single integrated solution from one supplier (usually external and individual business components not available standalone)
Mix of solutions from single or multiple vendors (will have a track record of integrating their solutions with each other)
Characteristics Pros Cons
Advanced functionality
Inter-system interfaces and control of database consistency in place
Not wholly dependent on a single supplier
No bespoke interface build within the transaction flow
Database maintenance easier
Single vendor relationship
Common hardware platform
Overall functionality coverage is weaker
May still require specialised system
Reliant on one supplier
Overall costs will be higher
Multiple vendor relationships
Integration / reconciliation overhead
Tight vendor SLAs required to allocate responsibilities
Mix of hardware platforms / technologies
FO FO FO
MO MO MO
BO BO BOBes
t of
Bre
ed
Multiple independent vendor solutions (internal and external)
Advanced functionality
Lower costs to replace parts of the systems architecture
Less dependence on a single supplier
Implementation, integration, reconciliation and maintenance is complex
Overall costs are higher
Multiple vendor relationships (each with own SLA)
Multiple databases cause inconsistencies
Mix of hardware platforms / technologies
Figure 2 – System Architecture Types
4
ASSET MANAGEMENT IMPROVING COST / INCOME RATIOS THROUGH TECHNOLOGY Although a ‘pure’ best-of-breed architectural solution is presented above, in practice this is viewed as a theoretical solution which is rarely achieved. Most organisations will either look for an integrated solution or a hybrid solution. However, many asset management organisations will have hybrid solutions as a result of a history of mergers and acquisitions. In addition, some of these business functions can be processed through an outsourcing arrangement. However, looking at the business function model, outsourcing arrangements tend to be implemented from the bottom of the model up i.e. from back office to front office. This is because the outsourcing market is not yet mature enough to handle isolated pieces of the value chain, say, for the middle office only. Middle office functionality would generally only be available (and cost effective) if the back office was being outsourced as well. Also, asset managers will generally not outsource the front office functions as this is where they purport to add value and demonstrate their unique selling proposition through: • Managing the customer relationship • Setting and implementing investment strategies • Optimising risk / reward profiles • Providing research and analysis For this reason any outsourcing arrangement can be viewed as being part of a hybrid solution. There are reasons for adopting each approach. The reasons may now be out of date for some institutions, due to changes in business strategy, but nevertheless it is interesting to note the drivers as they will influence the architectural blueprint. The table below summarises the systems architecture types and associated high level drivers.
Systems Architecture Type
Business strategy / drivers influencing systems architecture choice
Integrated Standard asset management product and service offering, single country solution, smaller client portfolio, standard reporting requirements
Hybrid Specialised trading, high volume of trading, large and varied portfolio of clients ranging from sophisticated to standard investment requirements, global rollout requiring high degree of configuration per country (solutions must be supported in these countries), complex client reporting
Table 2 - Characteristics of system architecture types
5
ASSET MANAGEMENT IMPROVING COST / INCOME RATIOS THROUGH TECHNOLOGY Buy, build or outsource Another important choice which needs to be made is how to source the solution(s). The options are buy, build or outsource (or insource if the business unit is part of a larger organisation). Each of these has its own pros and cons, summarised in the table below.
Fit for Purpose
Control own destiny
Potentially create a competitive advantage through customised solution
High risk of project failure
Costly to build and long delivery timescales
Not a core activity for an asset manager
Not a tried and tested product
Need to have a dedicated 24 x 7 support & maintenance team - costly
Build
Buy
Outsource
Time to market faster than build option
Best practice processes adopted
Legislative and market changes handled more efficiently and cheaper by package vendors through economies of scale
Can capitalise the investment over time
Growing functionality as user base increases - pooled cost of ownership
Enhancements take longer as they are tied in to software release cycles
Reliant on the vendor product strategy fitting in to your requirements
On going maintenance fees and cost of ownership.
Potentially poor service quality (due to vendor’s other client priorities)
Reduce and control operating costs
Improved company focus
Accelerated reengineering benefits
Shared risks
Free resources for other purposes
Contract employees less company oriented
Lengthy bid process
Longer response time to problems
Time-consuming to supervise contract
Costs increase with volume
Immaturity of outsourcing options for some business functions
Pros Cons
Figure 3 - Pros and Cons for Build, Buy and Outsource options
In today’s market, where there is an established vendor community with mature products, the buy option will normally prevail over the build unless there are specific reasons for doing otherwise. For example, where there is a lack of maturity in the vendor market for a specific business area, or where the development can be undertaken in-house with limited risk due to its size or availability of cheap and abundant technology resources. On the other hand, the choice of whether to buy or outsource involves a more complex decision process. For example, the fund management outsourcing business is increasingly mature which enables a strategic change to be effected by those fund managers who would now like to focus on either product distribution or product manufacturing, or perhaps both.
6
ASSET MANAGEMENT IMPROVING COST / INCOME RATIOS THROUGH TECHNOLOGY Figure 4 discusses how to decide which business areas are strong candidates for outsourcing. How do you decide which business areas / functions are strong candidates for outsourcing? A two-step process is recommended, which first of all develops the strategic intent and then develops the business case. Step One - Developing Your Strategic Intent assesses the options and opportunities that outsourcing can and cannot provide your business. It identifies and verifies your core competencies, business critical activities, processes that add value and those that erode value. It provides senior management with a ‘map’ of the business showing your ‘Options for Sourcing’; whether that is to Outsource, Insource (selling services to other companies) or maintain the status quo. To achieve this holistic view the following model is used to assess both the internal and external factors facing the business. This assessment – both Internal and External – provides the data necessary to develop the strategic intent which will answer the key questions; What can I outsource? What should I outsource? What are the benefits to my business? What are the risks I face? Step 2 - Developing the Business Case for Sourcing Your Strategic Intent identified areas that you could outsource. Before committing to a supplier you need to develop your own business case, without undertaking a large scale operational review. This step focuses all questions on developing a business case in order to decide whether the benefits outweigh the costs. The Future State (“To Be”) offered by the potential outsource providers is assessed together with the existing Current State (“As Is”) definition, in terms of processes, technology and people. This is performed at a detailed level to enable a tight scope to be defined around the function/product area being assessed and also to identify exceptions in the process. Critical to this is a comprehensive view of the hand-over points between the area being assessed and the remaining business. Once the Current and Future states have been defined an impact assessment can be performed that clearly identifies the changes required to move to the future business model. The changes identified will then feed into the overall indicative timescales and approach. This is required to manage senior management and sponsor expectations of the timescales, resources required and costs to implement. The financial business case, covering implementation and on-going costs, proposed savings and return on investment, is then developed and fed into the overall business case that will in turn make recommendations as to whether the opportunities and benefits outweigh the cost of implementation.
Customers
Products
Processes
Technology
People
Stra
tegi
c D
irect
ion
CompetitorAnalysis
Regulation
OutsourceSuppliers
Strategic Intent
Internal Focus External Focus
ManagementControls
MarketDevelopments
What can I outsource?What should I outsource?What are the benefits?
What are the risks?
BusinessCase
ImpactAssessment
FutureState
Definition
CurrentState
Definition
StrategicIntent
ImplementationTimescales &
Approach
FinancialBusiness
Case
Figure 4 - Determining candidates for outsourcing
7
ASSET MANAGEMENT IMPROVING COST / INCOME RATIOS THROUGH TECHNOLOGY 3. Determining the optimum architectural framework The previous section looked at the solution options (system architecture types and the choice of build, buy or outsource) which must be considered in order to create the systems architecture blueprint. However, in order to arrive at this stage it is essential that a four step process (described in figure 5 below) is followed. The objective of this exercise is to determine: 1. What your business functions are 2. How they are organised and inter-relate 3. What types of solution will be necessary 4. What actual software components will be used (new and /or existing) The consequence of by-passing any of these steps is serious and could result in the wrong solution being designed and then built. Even if the steps are followed sequentially from 1 to 4 there is often still a need to refine some of the earlier design decisions as clarity of the solution is gained. Therefore, the process below may require a number of iterations. Step 1. Business Vision
D TCU S
B a nkN e w Y o r k
B a n kL o n d o n
B a n kA sia /P a cif ic
C HE S SA U
CR E S TU K
E u ro c l e a rF R, B E , N L
C le ar s tre a mD E
Se g a Inte r Se ttleC H
S u b -c le a r in gA g r e e m e n ts
C lie nt sIn ve stm e n t M a na ge rsP ri vate C lie n tsH e d ge F un d sP ri vate Ba nk s
C o r r es p o n d en tsM a rke t M ak er sB ro ke r De a le rsIn ter ne t B ro ke rsS toc k Bro ke rsF i na n ci al A g gre g ato rs
M e m b er sh ip s &R e lat io n s h ip sC S D s (CR E ST , D T C, e tc. )IC SD s (E u roc le ar &C l ea rst re a m )3 rd Pa rty Ag e nts
B a n kC le ar in g S e rv ice s H u b sA m eri ca sE ur op e /M id d le -Ea st /A f r icaA si a/P ac if ic
D TCU S
B a nkN e w Y o r k
B a n kL o n d o n
B a n kA sia /P a cif ic
C HE S SA U
CR E S TU K
E u ro c l e a rF R, B E , N L
C le ar s tre a mD E
Se g a Inte r Se ttleC H
S u b -c le a r in gA g r e e m e n ts
C lie nt sIn ve stm e n t M a na ge rsP ri vate C lie n tsH e d ge F un d sP ri vate Ba nk s
C o r r es p o n d en tsM a rke t M ak er sB ro ke r De a le rsIn ter ne t B ro ke rsS toc k Bro ke rsF i na n ci al A g gre g ato rs
M e m b er sh ip s &R e lat io n s h ip sC S D s (CR E ST , D T C, e tc. )IC SD s (E u roc le ar &C l ea rst re a m )3 rd Pa rty Ag e nts
B a n kC le ar in g S e rv ice s H u b sA m eri ca sE ur op e /M id d le -Ea st /A f r icaA si a/P ac if ic
Step 2. BusinessArchitecture
Step 3. ApplicationArchitecture
Step 4. Application SoftwareArchitecture
• Clients• Business units• Products & Services• Geography• Timelines• Channels• Principles of
operation
What are your business functions /how are they defined?
• Business functions• Key processes• Key data flows• Key relationships• 2nd level process
flows• What are expected
business volumes in 3-5 years time
How are your business functions to be organised?
• Key application components
• Key interactions between components
• Designed to enable the business process model
How do the business functions map on to solution components?
• Specific application software products and services (existing or new)
• Mapped to the applications architecture
• Key interfaces (API’s)• Key message & data flows • Middleware architecture
What type of solution components to be deployed and what are the boundaries?
C lie n t A cc e ssL a ye r
E nt erp r is e B rok e r
A S P
E x e c u te d T r a de In p ut
B N Y C S (L o nd o n) G e n e ra l L e d g e r
S u n A c co u n ts,IF L E X , B P S
B illin gT A T A B i ll in g ,
B O N Y In -h o u se
BO N Y G e n e ra l L e d ge r
B O N Y L e d g e r
S to c k L e n d ing /B o rro w ing
O n e W o r ld ,G lo b a l O n e
M a rk e t D a taF id e l it y Ev en t/M S D D at a,
B O N Y Pre -s c ru b be d C orp ora te A c tion s & In s t. da ta
C o rp .A c ti on sB O NY In -h o u s e ,
T A T A ,E v e n t
C on s o lid a te d R e p or tin g & M IS
In -h o u s e ?
C a s h & S to c k R e c on c ilia tio n
S m artS t re am ,In te lliM atc h
O utp ut D is t rib u tio n E nq u iry /M a i nte n a nc e
C IT RIX
G L O S SR e ta il
TA R O T
R e g u la tor y R e p or tin g
X S M E
R e fe re nc e /S ta ti c D a ta
A c c o un t ing , B oo k s & R e c or ds
T ra d e P ro c e s s i ng
S e tt le m e n t C lie n t R e po rt in gS T P E n q u ire r
E rro r & S ta tu s H a n d ling
S T P E xp lo re r
G S T P A C R E S T D T C CE ur oc le a r S E G A In te rS e t t le Cl e a rs t re a m O M G E O
BN Y C S G e ne ra l L e d g e r
B P S
T ra n s p o rt (M Q S e r ie s, T IB C O )
R o ut in g & T ra ns fo rm a t ionM e rc a to r , T ib c o , IB M , S e e B e yo n d , V i tri a , w e b M e th o d s
N o te : F o rma l E AI la ye r m ay n o t b e re qu ire d im me d iate ly , bu t m a y w e ll b e req uire d f or f le x ib i li t y in t he f utu re
P lu s W e b, F T p etc )
S W IF T
C lie n t Ac c e s sL a y e r
E n te rp r is e B r o ke r
A S P
G S TP A C R E S T D T C CE u ro c le a r S E G A In te r s e t tle C le a rs t re a m
R e t a il
R e g u la to r y R e p or tin g
R e f e re nc e /S t a ti c D a ta
E rro r & S ta t u s H a n dl ing
A c c o un t in g, B oo k s & R e c or ds
T ra d e P ro c e s s ing
C lie n t R e po rt in gS e tt le m e n t
C on s o lid a t e d R e p or tin g & M IS
Ca s h & S to c k Re c on c ili a tio n
M a rk e t D a t a S W I FTS to c k L e n din g /B or ro w in g
BN Y C S I (L o nd o n)
G e ne r a l L e d ge r
B N Y CS G e ne r a l L e d g e r
Bil ling C or po ra t e A c tio n s
B O N Y G e n e ra l L e dg e r
E x e c u t e d Tr a d e In p ut
O ut p ut D is trib u ti on E n qu iry /M a int e n a n c e
M e s s a g e R o u tin g
O M G E O
Core Functions
CanadaClient Access
Reference/Static Data
Manual TradesTrade Feeds Spreadsheets Inter-company Trades
Executed Trade Input
Confirmations Error/Status Handling
Status Monitoring & Reporting
Trade ProcessingTrade Capture
Stamp Duty & Tax Calc.
FX
Enrichment
Validation
Commission & Fee Calc.
Stock Borrowing & Lending
Cash & Stock Reconciliations
ReportingContract Notes
Ad-Hoc Reports
Statements
Confirmations
Billing
SettlementCREST
Clearstream
Euroclear
Regulatory Reporting
Currencies, Holidays
Fees & Charges Structure
Standard Settlement Instructions
Counter-party Details
Instruments
Error & Status Handling
Confo Tracking
Fail Handling
Settlement Status
Status Handling
External Services
Accounting
Trade Ledger
Cash & Stock Projections
General Ledger
Stock Record
Regulators
FSA (UK)
Pre-settlement matchingSettlement Systems
TRAXGSTPA
OMGEO
MessagingSWIFT
Market DataPrices
Corporate Actions
Retail
Retail Processing
Stock Borrowing
Settlement
Reconciliations
Settlement
SegaInterSettle
Report Distribution
Corporate Actions
Corporate Action Processing
Figure 5 - Establishing an architectural framework
The step from 3 to 4 involves detailed analysis and perhaps an iterative process since it is only by step 4 when consideration is given to specific software solutions. Going through this process ensures that the right application will be deployed to meet the business vision. This analysis will require: • Conducting research on vendor solutions to establish suitability (possibly through a Request for
Information); and, • Reviewing the current technical architecture to ensure that technology standards are maintained
(these are normally constraints and will include key areas such as databases, hardware platforms, connectivity, deskop); and,
• Undergoing a feasibility study to establish financial viability (through the construction of a business case).
8
ASSET MANAGEMENT IMPROVING COST / INCOME RATIOS THROUGH TECHNOLOGY Clearly at this point there will need to be a view as to which systems architecture type is the preferred way forward, i.e. best of breed, integrated or hybrid, to limit the scope of analysis. This will already be inferred, to a large extent, from the business strategy drivers discussed earlier. The table below (Table 4) shows a list of key vendors operating in the UK with solutions in the asset management business (it clearly demonstrates the architectural solutions available for the buy option). The colour coding indicates solutions which are linked or can operate independently of any other solution provided by the software vendor. For example, DSTi has a number of product offerings which can be sold and operated separately or can be implemented as an integrated solution. It is worth revisiting Table 1 which listed a number of ways in which the cost / income ratio can be improved in an asset management organisation. The business function components can now be mapped on to this table to demonstrate how the benefits can be delivered. Business Change Impact Influenced by which
components? Creating enhanced customer experiences through “knowing your customer”
Reduces customer attrition and enables customer growth
CRM
Ensuring service levels provided are consistent with client profitability
Enables the value of the client relationship to be maximised
CRM Client Reporting Back Office (management information)
Delivery of the service through multiple channels with consistent content and presentation
Reduces operational costs by providing quality services through lower cost channels
Middleware (this technology solution is not included in the component model) CRM Client Reporting
Increase product ranges and introduce sophisticated investment strategies
Maintains /increases ‘wallet’ value and may provide additional revenue streams
CRM Decision Support Order Management Back Office
Improved, timely and accurate reporting of investment performance
Improves relationship manager efficiency by reducing administration overheads and allowing the RM to focus on managing the relationship
CRM Client Reporting
Operational efficiency from front to back office
Reduction of operational costs by streamlining processes
Decision Support Order Management Client Reporting Back Office Corporate Actions
Table 3 - How the implementation of automated business component solutions can improve the cost / income ratio
9
ASSET MANAGEMENT IMPROVING COST / INCOME RATIOS THROUGH TECHNOLOGY
FO
Clie
nt R
elat
ions
hip
Mgm
t
Dec
isio
n Su
ppor
t
Ord
er M
anag
emen
t
Com
plia
nce
Per
form
ance
Mea
sure
men
t
CG
T
Clie
nt R
epor
ting
Bac
k O
ffice
Cor
pora
te A
ctio
ns
PEP
s/IS
As
Fun
d A
ccou
ntin
g
Actuate(Actuate)Advent Solutions (Moxy/Axys/Qube/Geneva)Charles River Development(CRTS)DST International (HiInvest/HiPerformance/ HiReporting/HiPortfolio/ OpenCGT)Eagle Investment Systems(PACE/STAR)ERI Bancaire (Olympic)Financial Software Ltd(CGix)Finantix(OneWealth)FMC Financial Models(Model/Trade/Pacer/Sylvan/Pages/Genvest)Global Investment Systems(MFACT)Heliograph(eVent)MacGregor(MFTP)Milvus (G3)Misys (Apollo/Eagleye/Altimis/Quasar)
Odyssey (Triple A)SS&C (Antares/CAMRA) Temenos (Globus)Thomson Financial (PreView/Icon/Oneva/Portia)Wealth Management(LISA)
MO BO
Table 4 - Examples of key asset management package solutions
Please note that the above table shows the back office as a single component. However, there are also specialist vendors who supply specific back office components for corporate actions, funds accounting and PEPs/ISAs processing. These are normally included within the back office solutions. For example, DSTi has corporate action functionality within HiPortfolio but does not sell a standalone corporate action solution.
10
ASSET MANAGEMENT IMPROVING COST / INCOME RATIOS THROUGH TECHNOLOGY 4. Putting it all together Organisations change, and as they do they need to have a systems infrastructure which is aligned to the evolving business and is optimised to deliver the best cost / income ratios. This may not always be easy to accomplish, perhaps due to the configuration of legacy systems, and so a more radical approach may be necessary. Defining a new systems architecture is not a trivial task as there are many options available and perhaps not all the required information is at hand. Investment decisions may need to be made and these must ensure that cost / income ratios are improved and that the payback on the investments is rapid. This white paper has looked at the options available, defined a process for arriving at the application software architecture and presented a mix of vendor solutions (for the buy option). Square Mile can support this whole process having successfully managed and implemented business and IT strategies. What is also important is that there is independence and market knowledge applied to the decisioning process. Square Mile is an independent management consultancy which has considerable knowledge of the asset management business and the vendor systems which operate in this business area. Figure 6, below, summarises the Square Mile approach for building / revising the architecture framework for asset management businesses.
Architecture Types
FO FO FO
MO MO MO
BO BO BO
FO FO FO
MO MO MO
BO BO BO
FO FO FO
MO MO MO
BO BO BO
Best
of
Bree
dIn
tegr
ated
Hyb
rid
Multiple independent vendor solutions (internal and external)
Single integrated solution from one supplier (usually external)
Mix of solutions from different vendors who have successfully integrated their solutions
Characteristics Pros ConsAdvanced functionality
Lower costs to replace parts of the systems architecture
Less dependence on a single supplier
Advanced functionality
Required inter system interfaces and control of database consistency in place
Not wholly dependent on a single supplier
No bespoke interface build within the transaction flow
Database maintenance easierSingle vendor relationship
Implementation and maintenance is complex
Overall costs are higherMultiple vendor relationships
Multiple database causes inconsistencies
Overall functionality coverage is weaker
May still require specialised system
Reliant on one supplier
Overall costs will be higher
Multiple vendor relationships
System Architecture Types
1. Business Vision
Core Funct ion s
CanadaCl ientA ccess
Refer ence/ Sta ticData
Ma nual Tra de sTr a de Fee ds Spr e ads he et s I nte r- c om pa nyTra de s
Executed Tr ade I nput
Bi lli ng Er ror/ Sta tusHa ndling
- Conf ir mat ions- St a te me nts
St atus M onit oring & R ep or t ing
Trade ProcessingTr ade Ca ptur e
St am p Duty &Ta x Cal c .
FX
Enri chme nt
Va l ida tion
Commi ss i on &Fe e Cal c .
St ock Bor rowi ng& Le ndingCa s h & St oc kRec onc ili a tions
R epor ti ngContr a ct Not es
A d- Hoc Re por ts
St a te me nts
Conf ir ma ti ons
B ill ing
Set tlem entCre s t
Cl e ar s tr e am
Eur oc l ea r
Re gul a toryRe port ing
C or por a te Ac ti onPr oc e s si ng
C ur re nc ie s ,Hol ida ys
Fe e s & Cha rge sStr uc t ur e
St anda rdSet tl e mentI nst ruc ti ons
Count e r-pa rt yDe ta il s
I nst rume nts
E rr or & St atusH andl ing
Fa il Handli ng
Se tt le me ntSta tus
Adv ic e Tra c k ing
Sta t us Ha ndli ng
Accounti ngTra de Le dge r
Ca s h & St oc kProje c ti ons
Colla t er a l Mgm t.
Ge ne ra l Ledge r
Stoc k Re c or d
Regu lator sExc ha nges
Reg. Bodie s
Pre- sett lement ma tchingLoc a l Age nts
TRAXGSTPA
O MGEO
MessagingSW IFT
Mar ket DataPri ce s
Cor pora teAc t ions
R et ail
Re ta i l Pr oce s s ing
C orpor at e Act ions
S tock Bor rowi ng
Set tl em ent
Reconcil iati ons
Se ttl e me nt
Se ga Int er Se ttl e
Core Funct ion s
CanadaCl ientA ccess
Refer ence/ Sta ticData
Ma nual Tra de sTr a de Fee ds Spr e ads he et s I nte r- c om pa nyTra de s
Executed Tr ade I nput
Bi lli ng Er ror/ Sta tusHa ndling
- Conf ir mat ions- St a te me nts
St atus M onit oring & R ep or t ing
Trade ProcessingTr ade Ca ptur e
St am p Duty &Ta x Cal c .
FX
Enri chme nt
Va l ida tion
Commi ss i on &Fe e Cal c .
St ock Bor rowi ng& Le ndingCa s h & St oc kRec onc ili a tions
R epor ti ngContr a ct Not es
A d- Hoc Re por ts
St a te me nts
Conf ir ma ti ons
B ill ing
Set tlem entCre s t
Cl e ar s tr e am
Eur oc l ea r
Re gul a toryRe port ing
C or por a te Ac ti onPr oc e s si ng
C ur re nc ie s ,Hol ida ys
Fe e s & Cha rge sStr uc t ur e
St anda rdSet tl e mentI nst ruc ti ons
Count e r-pa rt yDe ta il s
I nst rume nts
E rr or & St atusH andl ing
Fa il Handli ng
Se tt le me ntSta tus
Adv ic e Tra c k ing
Sta t us Ha ndli ng
Accounti ngTra de Le dge r
Ca s h & St oc kProje c ti ons
Colla t er a l Mgm t.
Ge ne ra l Ledge r
Stoc k Re c or d
Regu lator sExc ha nges
Reg. Bodie s
Pre- sett lement ma tchingLoc a l Age nts
TRAXGSTPA
O MGEO
MessagingSW IFT
Mar ket DataPri ce s
Cor pora teAc t ions
R et ail
Re ta i l Pr oce s s ing
C orpor at e Act ions
S tock Bor rowi ng
Set tl em ent
Reconcil iati ons
Se ttl e me nt
Se ga Int er Se ttl e
Cl ientA ccessLayer
Enter pri se Broker
ASP
CREST GST PA DTCCEur o cl ea r SEGA In t er s et tle Cle a rs tr ea m
Re ta il
Re g ul a to ryRep o rti ng
Re fe r enc e/ Sta ticDa ta
Err or & St at usHa nd l in gAcc o u nt in g ,Bo o ks & Re c o rd sTr ad ePro c es s in g
Cli en t Rep o rt ingSe ttl em en t
Co n s oli d at edR ep o rti n g & MIS
Cas h & St oc kRe c on c il ia tio n
Mar k et Da ta SWI F TSt oc kL e nd i ng / Bo r ro win g
BNYCSI(L o nd o n)Gen e ra l Le dg er
BNYCS Ge n e ra lL e d ge r
Bi lli ng Co rp o ra teAct io n s
BONY Ge n er alL e d ge r
Ex ec u te d T ra deI np u t Ou tp u tDis tr ib ut io n En q u iry /Ma in t en a nc e
Message R ou ting
OMGEO
Cl ientA ccessLayer
En te r p ri se Bro k e r
ASP
CREST GST PA DTCCEur o cl ea r SEGA In t er s et tle Cle a rs tr ea m
Re ta il
Re g ul a to ryRep o rti ng
Re fe r enc e/ Sta ticDa ta
Err or & St at usHa nd l in gAcc o u nt in g ,Bo o ks & Re c o rd sTr ad ePro c es s in g
Cli en t Rep o rt ingSe ttl em en t
Co n s oli d at edR ep o rti n g & MIS
Cas h & St oc kRe c on c il ia tio n
Mar k et Da ta SWI F TSt oc kL e nd i ng / Bo r ro win g
BNYCSI(L o nd o n)Gen e ra l Le dg er
BNYCS Ge n e ra lL e d ge r
Bi lli ng Co rp o ra teAct io n s
BONY Ge n er alL e d ge r
Ex ec u te d T ra deI np u t Ou tp u tDis tr ib ut io n En q u iry /Ma in t en a nc e
Message R ou ting
OMGEO
Cl ientAccessLayer
Enter pr ise Broker
AS P
Ex ec u te d Tr ad eIn p u t
BNYCS ( Lo n d on )Ge n er al L e dg e rSun Ac co u nts ,IF L EX
Bill in gT ATA Bi illi ng ,BONY I n- ho u se
BONY Gen er a lL ed g e rBONY L ed g er
Sto c kL e nd i ng /Bo rr owi ngOne Wo rld ,Glo ba l On e
Mar ke t Dat aF ide lit y E ve nt/ MS D Da ta ,B ON Y Pre -s cru bb ed C orp or ate
A ct ion s & In st . d ata
Cor p. Act io nsBONY In -h ou se ,TAT A,Eve n t
Con s ol id at edRep o rt in g & MISIn -h o us e?
Ca sh & St oc kRec o n ci lia tio nSma rtS tr ea m,I nt ell iMatc h
SW IFTB ON Y Tu rb oS WIF T Gat ew a y ,
A S P
Ou tp utDis tri bu ti on En qu ir y/ Mai nt e na nc e
G LOSSRe ta ilTA R OT
Re g u la to ryRep o rt in gX SME
Re fe re nc e /Sta ti cDa ta
Ac c ou nt in g ,Boo k s & Rec o rd sT ra d ePr oc e ss in g
Set tle me nt Cl ie nt Re po rt in gST P E n qu ire r
Err or & St at usHa n d lin gST P E x plo re r
CREST GST PA DT CCEu ro cl ea r SEGA In te rs et tle Cl ea rs tr e am OMGEO
BNYCS Gen e ralLe d g er
BPS
Tr an s po rt ( MQ Ser ie s, TI BCO)
Ro u tin g & T ra n sf or ma tio nMer cator, Ti bc o , I BM, SeeBey ond, Vi tria , webMethods
Cl ientAccessLayer
En te r pr is e Bro k e r
AS P
Ex ec u te d Tr ad eIn p u t
BNYCS ( Lo n d on )Ge n er al L e dg e rSun Ac counts ,IFLEX
Bill in gTATA Bi illi ng ,BONY I n- house
BONY Gen er a lL ed g e rBONY Ledger
Sto c kL e nd i ng /Bo rr owi ngOneWorld ,Globa l One
Mar ke t Dat aF ide lit y E ve nt/ MS D Da ta ,B ON Y Pre -s cru bb ed C orp or ate
A ct ion s & In st . d ata
Cor p. Act io nsBONY In-house,TATA,Event
Con s ol id at edRep o rt in g & MISIn -hous e?
Ca sh & St oc kRec o n ci lia tio nSmartStr eam,I nt ell iMatc h
SW IFTBONY TurboSWIFT Gat eway ,
ASP
Ou tp utDis tri bu ti on En qu ir y/ Mai nt e na nc e
G LOSSRe ta ilTAROT
Re g u la to ryRep o rt in gXSME
Re fe re nc e /Sta ti cDa ta
Ac c ou nt in g ,Boo k s & Rec o rd sT ra d ePr oc e ss in g
Set tle me nt Cl ie nt Re po rt in gSTP Enqu ire r
Err or & St at usHa n d lin gSTP Ex plorer
CREST GST PA DT CCEu ro cl ea r SEGA In te rs et tle Cl ea rs tr e am OMGEO
BNYCS Gen e ralLe d g er
BPS
Tr an s po rt ( MQ Ser ie s, TI BCO)
Ro u tin g & T ra n sf or ma tio nMer cator, Ti bc o , I BM, SeeBey ond, Vi tria , webMethods
D TC
U S
B an kN e w Y o rk Ba nkLo ndo n
B a nkAs ia/ Pa cif ic
C HE SS
AU
CR E STUK
Eu ro cle arF R , B E, NL
C lea rst rea mDE
Se gaIn ter Set tleCH
Sub-cleari ngAgr eements
C lien tsIn ves tme nt M an age rsP riva te C lien tsH edg e F und sP riva te B ank s
C orr esp ond ent sM ark et M ake rsB roke r D eale rsIn tern et B rok ersS tock B roke rsF inan cia l Ag gre gato rs
M em be rsh ips &R ela tio nsh ipsC SD s(C RE ST , DT C, etc. )I CS Ds( Eur ocle ar &C lea rstr eam )3 rd Par ty A gen ts
Ban kCle arin g S erv ice s H ubsAm eric asEur ope /Mi ddle -Ea st/A fric aAsi a/Pa cifi c
DTCU S
BankN e w Y o rk BankLo ndo n
B a nkAs ia/ Pa cif ic
CHESSAU
CRESTUK
EuroclearF R , B E, NL
C lea rst rea mDE
Se gaIn ter Set tleCH
Sub-cleari ngAgr eements
C lien tsIn ves tme nt M an age rsP riva te C lien tsH edg e F und sP riva te B ank s
C orr esp ond ent sM ark et M ake rsB roke r D eale rsIn tern et B rok ersS tock B roke rsF inan cia l Ag gre gato rs
M em be rsh ips &R ela tio nsh ipsC SD s(C RE ST , DT C, etc. )I CS Ds( Eur ocle ar &C lea rstr eam )3 rd Par ty A gen ts
Ban kCle arin g S erv ice s H ubsAm eric asEur ope /Mi ddle -Ea st/A fric aAsi a/Pa cifi c
2. BusinessArchitecture
3. ApplicationArchitecture
4. ApplicationSoftwareArchitecture
•Clients•Business units•Products & Services•Geography•Timelines•Channels•Principles of operation
What are your business functions?
•Business functions•Key processes•Key data flows•Key relationships•2nd level process flows
How are your business functions to be organised?
•Key application components•Key interactions between components•Designed to enable the business process model
How do the business functions map on to solution components?
•Actual application software products and services (existing or new)•Mapped to the applications architecture•Key interfaces (API’s)•Key message & data flows •Middleware architecture
What type of solution component to be deployed and what are the boundaries?
FOCR M D S OM PM CG T C R B O C A PE P FA
Actuate(A c tu ate )Adve nt Solut ions (M o xy/A xys /Qube /Ge neva)Ch arle s River De velopm ent(C RT S)DS T Interna tional (H iIn ves t/H iP er form a nce/ HiR epo rtin g/HiPo rtfolio )E agle Inv estm ent S ystem s(P A CE /STA R )E RI B anca ire (O lym pic )Financial S oftwa re L td(C Gix )Finantix(O neW e alth)Global Inv estm ent S ystem s(M FA CT )He liograph(e Ve nt)M ac Gregor(M FT P)M ilv us (G 3)Odys sey (T riple A )S S& C (A ntares /C AM R A) Tem enos (G lobus)Thom son Financial (P reVie w/Icon/One va/P ortia)We alth M anage me nt(L IS A )
M O BO
Fit to Purpose
Control own destiny
Potentially create a competitive advantage through customised solution
High risk of project failure
Costly to build and long delivery timescales
Not a tried and tested product
Need to have a dedicated 24 x 7 support & maintenance team - costly.
Build
Buy
Outsource
Time to market significantly faster than build option
Best practice processes adopted
Legislative and market changes handled more efficiently and cheaper by package vendors through economies of scale
Enhancements take longer unless it already exists.
Reliant on the vendor product strategy fitting in to your requirements
On going maintenance fees and cost of ownership.
Potentially poor service quality (due to other client priorities)
Reduce and control operating costs
Improved company focus
Accelerated reengineering benefits
Shared risks
Free resources for other purposes
Contract employees less company oriented
Lengthy bid process
Longer response time to problems
Time-consuming to supervise contract
Low level of service
Increased costs
Pros Cons
System Architecture
Types
Buy, Build, Outsource
Business Vision,Business
Architecture
Vendors
Architecture FrameworkApplication ArchitectureApplication Software Architecture
Initial Feasibility Study
Initial Business Case
Analysis
Research
Modelling
Presentations
Decisioning
Inputs Activities Deliverables
Figure 6 - The Square Mile approach to creating an architectural framework
It is only when the architecture has been defined that the main effort of work to implement the change (people, processes and technology) can begin. A roadmap will need to be defined to move from the current state to the future planned state. This is likely to be phased to reduce risk, especially where hybrid solutions are to be implemented.
11
ASSET MANAGEMENT IMPROVING COST / INCOME RATIOS THROUGH TECHNOLOGY
12
About Square Mile Consulting Square Mile Consulting was formed in 2002 and specialises in providing consulting services to the financial services sector. Our consultants have considerable experience of working with financial services institutions. Consequently, each Square Mile consultant brings to assignments in-depth business knowledge and a proven track record. Square Mile’s approach to assignments is to work with our clients and focus on the success that they want to accomplish and not to prolong our assignment. We feel that managing change can only be achieved through focus, which means being clear about which services we offer and within which sectors. Only through such specialisation can we maintain the depth of expertise and awareness needed to add real value to our clients’ businesses, covering the full spectrum from strategic thinking right through to practical delivery of change.
If you require any further information please contact:
John Krol Square Mile Consulting Limited
3rd floor London Exchange
Brushfield Street London ECV 6EP Tel: 020 7193 4455
Email: [email protected]