If knowledge is power, then in our modern technological times, data is surely king. Everywhere we look, we see marketeers and retailers alike harnessing the power of data to understand the consumer.
This change, quite evident in wider society, has not escaped the asset management industry – the need for advanced data tools to support the asset management industry to meet its rather multi-faceted needs is greater than ever. And in the heart of it lies the mountain of growing data that the industry currently relies on, with its importance further bellied by recent changes to the regulatory framework.
Part of a series of wider reforms, the Financial Conduct Authority has, through a review into this industry (SYSC 4.1.1), cast its gaze to the asset management industry and the impact mis-managed data has on market transparency.
“1) A firm must have robust governance arrangements, which include a clear organisational structure with well defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, and internal control mechanisms, including sound administrative and accounting procedures and effective control and safeguard arrangements for information processing systems.”
While that may be relatively easy to interpret as this industry really needs to be accountable for the way it uses and distributes data - the odious process of implementing an adequate system on the other hand has always been somewhat trickier.
Research carried out by State Street last year found that 93 per cent of asset managers surveyed pointed to their data as a strategic priority, but the majority also stated that they are playing catch-up on data, especially as often their internal systems no-longer fulfil their data needs.
In fact, the desire to get clean and reliable data is the ultimate goal, or should be, for most fund groups - especially now. Since the implementation of the retail distribution review, FE has lost count of the number of times managers have said that they have needed to take a more active role in their quant screening, where before they had a whole armour of corporate hospitality and sales bells and whistles.
Good data attracts investors in the post-RDR land. Rankings and numbers count, now more than ever.
Good data also drives better transparency to the market, and boosts investor confidence and trust at a time when the financial industry as a whole is still viewed rather suspiciously.
But the very nature of data itself lends to difficulties in collating, cleaning and distributing data effectively. It is more often than not time- and labour-intensive, not to mention an on-going costly process. The added pressures of the changing regulatory landscape (although very much welcome to help move us towards a better, transparent market) – piles on even more pressure to get data right.
With these struggles and changes in mind, an increasing number of fund groups are opting to outsource their data needs to services such as FE Precision +, Kneip, FundConnect – products whose services help disseminate data across platforms and vendors.
FE Precision + - a newly launched service which acts as a one-stop shop, if you will, goes a few steps further with an asset manager’s data. The service takes the data, cleans and validates it, then distributes it to the sources at a pre-set time across different regulatory jurisdictions - all in a flexible package to cater for the asset manager’s needs.
Uniquely, it does not force the manager to secede all control over their data but is in constant contact with the fund group – to highlight issues in order to keep the managers in the loop. And attention needs to be paid to this part because it is important.
The FCA, in its review, stated although it recognises “the merits of specialisation, scale and automation in data processing… asset managers should remain alert to the risks of surrendering too much control over key data and mitigate these accordingly.”
There’s no denying that we need to be vigilant in addressing the issues surrounding data because it is intrinsically tied to how successful the asset management industry is over the coming years.
Improving data and properly tapping into the full marketing and investing potential of clean data will be key to survival.
Only through the right tools to get to accuracy and timeliness will asset managers gain competitive advantage in an investment environment that grows more complex and challenging every day.
Ultimately, harnessing the power of good data management will give those taking the right steps greater mastery of their market.