Investors can now move their money around more easily than ever before and are no longer investing in the same fund family for the rest of their lives. Instead, investors may abandon ship at the first sign of issues in fund administration, accounting and and investor services. Investors need stability. Funds must do everything they can to demonstrate that they have the required fund administration processes, controls, synergies and collaborations in place. Fund management puts a lot on the line by not taking the time to prioritize excellence in fund administration — lost money, reputation, and future business.
Points of Failure
Fund Administration Systems – common failures of inferior systems
- Investor or portfolio accounting records do not match financial statements.
- Form PF data and Fair and Accurate Credit Transaction Act (FACTA) filings are erroneous.
- Discrepancies arise as a result of the processing and timing of corporate actions.
- Accounting, reporting and fund administration systems that operate properly on their own are not in sync causing data sets to be misaligned because all of the information is not integrated.
- Fund administration systems that are unreliable, clumsy and with limitations cause chaos. Not only do some have unresolved bugs, some have design constraints that limit their performance, slow processing or render them incapable of managing complicated and constantly changing data.
- Fund administration systems incapable of automating processes force a reliance on error-prone manual processes. which entails a collaboration between fund administrators and a digital, scalable, and simple-to-implement technology platform.
To decrease manual touchpoints, a fund administration system must be user-friendly, even for the least technologically savvy user. It must also provide exception-based workflows to eliminate the need for as many manual operations as possible, except in particular specified circumstances.
Fund Administration System Failures
Communication Among Fund Administration Teams
- Because the accounting systems are not integrated with the transfer agent / fund administration system, trial balances at the class and total levels don’t match.
- The accounting systems at the middle office and the fund accounting departments are not in sync, resulting in discrepancies in how accounting entries are recorded.
- Because accounting departments, corporate action teams, compliance departments, fund administration and financial reporting departments all have their own data sets, when teams fail to communicate effectively, problems develop. One fund administration group may pull data without consulting another, unintentionally extracting incorrect data or failing to fully comprehend the data they’re utilizing to make crucial decisions.
- Management is unable to see the larger picture beneath the fund administration data since the various teams are not communicating with one another. Certain teams may not even be aware of the downstream impacts when they rely on specific data points if they do not receive sufficient briefings from knowledgeable individuals. As communication within fund administration groups breaks down, the risk increases.
Even at major fund administration firms teams often operate in their own separate silos. Far-flung fund administration teams are based all over the world while some functions are outsourced. The potential for miscommunication and the known operational errors that result represents a significant business risk for client funds.
There are numerous points in the process of fund administration when a lack of precision, automation, and experience can result in embarrassing and costly blunders. In the eyes of investors, financial advisors and auditors, a fund’s reputation for fund administration blunders reflects on the general competence of the fund sponsor. Advanced, experienced and integrated fund administration architecture is essential to the efficiency and positive reputation of a modern investment fund.