Is fine good enough?

by | Aug 8, 2022 | Digital transformation

With increasing pressures from regulations, data and processes we have to look at our fund governance process and ask the question – is ‘fine’ good enough?

Time when ‘fine’ is a good word:

  • Fine wine
  • Fine dining
  • Fine art

Times when ‘fine’ is not a good word:

  • “You look fine, darling”
  • “I’m FINE”
  • “My fund research governance system is fine”

One of the most enlightening books I’ve read is written by husband-and-wife psychologists, Alan and Barbara Pease, called ‘why men don’t listen and women can’t read maps’. It explores evolutionary differences between (neurotypical) male and female brains.

There is a section on language and, notably, the difference in perception of words like ‘fine’. So, maybe it’s just my brain, but during conversations I have with wealth managers and financial advice firms about their fund selection governance, I’m always surprised when they say that the technology they use to aid the fund selection and oversight process is ‘fine’.

In May, we worked with NextWealth to understand the technology being used by firms within their investment propositions. This broad remit covered everything from platforms to quantitative fund data tools and order management systems. Technology was noted as one of the biggest challenges that firms face – they need to keep pace with client and industry expectations – while growing their business, maximising efficiencies, and minimising risk. So why was ‘spreadsheets’ one of the most frequently named type of technology used according to the NextWealth report?

Ctrl+F

When it comes to tracking investment decision making, the report corroborated what I often hear in the market; that the most used tools are Excel, Word and Sharepoint. Perhaps the teams in question aren’t aware of specialist alternatives like Ada Fintech, and what could be possible. We once spoke to a firm who had a well-known, now disgraced, global equity fund on their approved fund list and held within client portfolios. Their Compliance department had questions: When did the Research team first have concerns? What questions had they asked the fund manager? When did they take action? It took 6 weeks to collate a response between various emails, Word documents and spreadsheets. In their words, they ‘lived in a world of Ctrl+F’. In this case it was an internal review, but what if it was a client, or the FCA asking the question? Good governance and record keeping all feed into a world of trust, which is often cited as the number one reason clients value their financial adviser.

The majority of firms we speak to have robust fund research processes which could only be described as ‘excellent’. They screen a fund universe of thousands down to a shortlist, meet and scrutinise the fund managers, and have Investment Committees debate and ratify the ultimate fund selection. Clients can have faith in the intellectual capital behind their portfolios. However, the record-keeping – capturing the qualitative reasoning behind how they got from the shortlist of fund options to the final one or two, the minutiae of the decision – is usually only ‘fine’.

The NextWealth report found that the most common place to store investment decisions is in the minutes of the Investment Committee meetings. Firms said that recommendations to change a holding or to change a rating for a fund would need to be made by the Investment Committee and that is where decisions and their rationale are tracked. Of course, it does the job, but its not futureproofed. Why search through file after file because you can’t remember in which month’s meeting that particular discussion was had?

With Ada, you can surface that information at the click of a button, track through to when changes were made in portfolios, and the impact on subsequent performance. With a holistic view of your fund research and portfolio information, you can focus on what matters and drive smarter decisions. Don’t risk your corporate memory being stored in someone’s head!

Is ‘good enough’ good enough?

I come back to the meaning of ‘fine’. The Oxford dictionary offers two definitions: of very high quality – adjective; or, in a satisfactory manner – adverb. What does it mean to you?

The wealth management industry is going through a state of change, with consolidation, a new generation of investors to engage and an ever-changing regulatory landscape, to name a few. New technologies exist to help with many of these, but which should you choose, and in what order?

Many processes within firms’ investment propositions need wholesale change to keep pace with client expectations and growth ambitions, but many are ‘good enough’. I argue that these are the ones that you should tackle first. With Ada you can improve and digitise your existing well-oiled fund research process, embedding more collaborative research and oversight, enable better stewardship and streamline data collection.

Workarounds and ‘it’ll do’ when it comes to the governance and record-keeping of fund selection, one day, won’t do. Ada’s purpose-built technology can help you stay regulator ready, with audit-quality oversight and better informed decision-making to power up your research team. You can find the research report here and please get in touch if you’d like to learn more! Until then, the only ‘fine’ I’m interested in is dining!