There is no doubt that we live in what most would consider to be a “digital” world when it comes to our direct to consumer industries - from social media to online shopping. We have adapted to make the most of what the internet has handed to us. Yet, B2B companies - financial services in particular – are still incredibly antiquated.
Many firms, fund managers, advisors and individual entrepreneurs are stilling relying on fax machines, pen and paper, and other manual processes to send documents to customers and execute day-to-day tasks. If you are a financial services professional reading this, you probably get it. If you are not, then you are likely wondering how this is possible given that we have autonomous vehicles and drone delivery services that can bring you toothpaste at a moment’s notice. Fax machines? Pen and paper? We are not joking.
What is not obvious, however, is that the financial services industry is rooted in traditional, risk averse banking ideals, which limits a chunk of today’s FinTech companies from being able to provide unique services that are also profitable and in compliance with SEC rules and regulations. These businesses are capable, but there is a lot of red tape.
In a nutshell, it is difficult for financial service companies to accumulate the human and monetary capital needed to build long term solutions to problems like onboarding, performance reporting, and compliance. So how do they solve it? Slap a postage stamp on it and keep their “well-oiled”, manual process running with longer hours and a few extra cups of coffee – or they just do not scale, and that’s not necessarily a bad thing if the model works for them. It is just not usually a sufficient long-term business plan for up and coming businesses in 2020.
This article is aimed at technology for fund managers, and what financial services companies should be looking for in fund manager software.
To cover our bases, let us touch on the meaning of “fund manager” and how the term can be used for various roles within the financial services industry.
The role of a fund manger can take on many shapes and sizes. For certain, they have several responsibilities that need to be met such as analysis, investment allocation, and reporting. These tasks can be extremely time consuming and will vary depending on the organization they are working for. They can be individuals, or a team made of two, three, or more.
Mutual funds and hedge funds are two types of organizations that hire for the designated “fund manager” role and must maintain the tasks we just mentioned. However, almost every investment fund will have fund managers or money managers, including real estate funds, private equity funds, and other non-traditional assets. While the applications and specific use cases vary depending on the type of fund, these managers all have commonalities and shared pain points.
Fund managers usually make money through similar payment structures. They earn a salary plus a percentage of the investment returns as an incentive to make the better, more lucrative decisions on behalf of the firm or organization they work for.
We now know the role of fund managers – to analyze and decide the best strategies for investing a fund’s resources – but we must also understand how placement agents fit into the picture.
Placement agents are the middleman between the fund managers and the investors. Think of them as a liaison. Funds hire placement agents to find accredited/qualified investors and introduce them to the fund managers. Not just anyone can perform this duty. All placement agents are regulated and registered with the SEC. Placement agents also perform other important duties, such as marketing the fund and helping to negotiate the terms of the investment.
Every organization in the financial services industry is (or should be) familiar with compliance. In a nutshell, it’s a set of rules and regulations set forth by the SEC to protect the interest of investors, hold institutions accountable for their actions, and to ensure that no parties involved are violating the law. Rules, rules, and more rules! When it comes to your own money, though, rules are a good thing, and we want them in place to promote security and ethical behavior.
There really are a lot of rules that must be followed, and followed exactly to the specifications of the SEC. If not properly adhered to, businesses can be shut down, and more seriously, business and their customers can be held liable in the court of law.
Since these rules are so specific and can vary greatly depending on the business model and the types of customers they have, many organizations will hire compliance consultants to do the work for them.
#1 – Consolidated Account Management
We can see that there are a lot of moving parts to the fund manager’s equation. She must track the progress of the fund, make investment decisions, and coordinate with 3rd party agents to close investors, and maintain compliance. What if she could streamline these tasks, and manage them all in one place?
Consolidated account management is first essential feature that any fund manager software should have. Tools are helpful, and can be complimentary to platforms, but platforms should be able to stand alone on their own two feet – relieving users of strenuous organizational burdens by being able to perform essential duties in one place.
The ideal platform for fund managers will contain a singular dashboard that enables the manager to see all their customers in one place. Additionally, the manager should be able to view granular data about any given customer as well as have the ability to communicate and execute transactions on their behalf.
#2 – Financial Capabilities
If you run a business in 2020, you are certainly familiar with CRMs, or Client Relation Management systems. They can be helpful in tracking deal flow, investors, and other important static and dynamic data. CRMs are best for sales teams but are sometimes used by fund managers because they seem like the best option to manage deal flow.
You might be a fund manger reading this thinking, “I use a CRM daily and it works for me”. It may work, and it may be efficient in helping you track investors – and that’s fine! However, most CRMs do not have financial capabilities. They are merely a means for tracking deals themselves.
If you are seeking a solution built specifically for fund managers, though, you might not even need your CRM. The best fund manager software might not be as robust for deal flow as a full blown CRM, but it may offer financial capabilities that matter more to you, such as asset custody – the ability to collect funds, hold custody of them, pay distributions to investors, and more. Again, these abilities aren’t a replacement for a CRM, but these meaningful functions inherently rely on an ability to organize investors and track their accounts, so it’s not too far off.
#3 – Compliance
Compliance might not be the direct duty of the fund manager himself, but they are often at the forefront of deciding which transactions and decisions are made when it comes to investments – so it’s best for compliance to be closely integrated into their activities.
We’ve already gone over compliance consultants. What might not be glaringly obvious if you haven’t delt with them, is that they can be very expensive. They can also take a lot of your own, precious time. You might need to hire someone onto your team to deal with compliance, and companies often do. There are companies, however, that hire third parties to consult for them. This is especially expensive and less scalable for the long term.
Therefore, we chose compliance as feature #3 that you should look for in fund manger software. This lets you pass on the responsibility to the regulated entity who powers the software and performs the due diligence for you. One type of compliance that should be included is AML/KYC, or Anti Money Laundering & Know Your Customer.
Any business operating in financial services needs to have the proper compliance. So why make it more expensive and difficult than it needs to be? If you have not started your own compliance business, then it shouldn’t be eating up hours of your precious time.
Software for fund managers has come a long way, and it’s only improving year over year. Fund managers, placements agents, hedge funds, VCs, and financial institutions can benefit greatly from taking a hard look at their internal systems and questioning their efficiency. After all, we know very well that we have the tools at our disposal to automate systems and processes to yield better results for businesses and their customers – so why not migrate over to newer tech? It’s not only the CEO or the fund managers themselves that will be grateful, but your customers as well.
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