Category: Best Practices


Account vs InflationReporting a portfolio’s comparative performance against representative benchmarks over various periods of time has been an widely implemented technique of investment advisors for decades.  Firms do this in a variety of different ways, and some methods are more meaningful than others.

Advisors may show the CPI as a baseline index against the portfolio and other indexes in an effort to illustrate how their investments have performed against inflation and hopefully point out the most basic benefit of investing with their firm versus keeping it under the mattress.

If a firm manages equity they may show the the Dow Jones or the S&P 500 indexes.  If they manage international equities, or have a bond component they will likely show other representative indexes.  They may further isolate performance by asset class and show it with the corresponding indexes to facilitate a client’s ability to draw a direct comparison between the performance of like asset classes and underscore the value they add to the investing process of specific asset classes.

PROBLEMS WITH TOTAL PERFORMANCE BLENDS

Firms typically show total performance too, but many run afoul when trying to show a representative index to match total portfolio performance.  Portfolio management systems like Advent Axys and APX have long supported the ability to create blended indexes, but the actual implementation of the feature falls short of real-world requirements.  In the past, many advisors were content to create a blended index with static weights, but firms soon recognized that these ballpark blends weren’t good enough for their requirements because they didn’t accurately reflect the asset mix of their portfolios over time.

Advent Software initially supported the creation of blended indexes in their portfolio management systems (Proport and Axys) through a report that was engineered to create simple index blends.  This method of creating indexes was somewhat limited because index weights couldn’t be changed over time, but it allowed advisors to manage many indexes centrally through the use of scripts and macros, and it also created separate index (DEX) files.  Having separate files allowed clients to track and show a number of blends if they chose to.

Advent improved the feature to some degree by creating the synthetic index, which allows users to change index weights over time on an individual portfolio basis.  The synthetic index feature works best when used to create ad hoc indexes for selected portfolios, but when users try to scale the feature to be used for a large number of portfolios its usefulness tested.  The ability to change the index weights over time is a plus, but updating the info in an automated fashion is not a feature of the system.

AUTOMATED BLENDING SOLUTIONS

In the early 90s, we started working with advisors to create custom blends with dynamic index weights in order to match the ever changing asset mix of portfolios.  This was done by categorizing assets as fundamental asset types, and assigning those asset types to like indexes.  Once the infrastructure was created we created an extract containing the historic month end asset type weights for all portfolios and used those weights along their corresponding index returns over time to create a true blended index.  The process was automated with a combination of Axys reports, macros, scripts and Visual Basic.

Years ago, we  helped firms address the some of the short-comings of the synthetic index feature by creating a product dedicated to creating blended indexes and managing them.  This allowed users to manage the indexes centrally rather than at the portfolio level.

Last year, we revisited the problem of effectively managing custom index blends for Axys and APX users again.  This time we automated the process of refreshing the index weights stored in each portfolio’s corresponding performance file through a process that updates the synthetic weights by stripping the performance files of their synthetic weight values and rewriting them based on each portfolio’s asset mix and correspondingly assigned indexes.  The process builds monthly synthetic index weights for the inception-to-date period.

This most recent update to our index blending automation tool leverages Advent’s synthetic index capability, and adds the much needed automation that users require to implement the existing synthetic index feature in a way that makes more sense.  Unfortunately, there are still limits to the built-in blending functions of Axys and APX.  For example, synthetic indexes create a blend called simply “Blend”, and users trying to show multiple blends need to create those other blends somewhere else and then generate index files, so that they can be shown alongside synthetic blended indexes.

Thankfully, Advent’s import/export functions, scripting and macros allow savvy users to workaround these limitations as long as they are willing to roll up their sleeves and do a little work or know someone who can help.

About the Author: Kevin Shea is President of InfoSystems Integrated, Inc. (ISI); ISI provides a wide variety of outsourced IT solutions to investment advisors nationwide.

For details, please visit isitc.com, contact Kevin Shea via phone at 617-720-3400 x202 or e-mail at kshea@isitc.com.

cableOver the years, I have seen a lot of first-rate cabling jobs done by true cabling professionals, but I am also surprised with the magnitude of shoddy work done by people claiming to be professionals.  The result of the latter is that I am tougher than most about vetting cabling companies.  I am not a cabling professional, but I understand the technology, test cables, and know how they are supposed to be wired.  I am also capable of doing fundamental cabling jobs when absolutely necessary.  What passes for network cabling in some instances is abysmal.

Some examples include:

  • Cables stapled to the wall – This is particularly ineffective, especially when the professionals doing it put staples through the cables.
  • Improper cable termination – CAT 5e and CAT 6 cables, the most widely installed cables today, are only supposed to be terminated in one of two methods.

As a technology consultant, it is my job to thoroughly check and maintain network infrastructure, such as cabling, that can impact the performance of my clients’ systems.  Though many homes and public places utilize wireless, most corporate environments still use gigabit Ethernet in lieu of wireless due to a demand for greater network speed and security.  With that in mind, managing cabled networks and minimizing cabling problems will continue to be a high-priority item for the foreseeable future.

Here are eight things you can do to help prevent cabling nightmares:

1. Run ANY planned cabling work by your primary IT manager or consultant.

2. Hire qualified cabling professionals and check their references.

3. Centrally locate wiring whenever possible. This means that you not only try to put the wiring in the center of your office, but also try to put all of the wiring in the same place, which is hopefully where your servers are stored.  This is, of course, an ideal.  Wiring centers sometimes wind up where they fit into an office floor plan.  If you have an existing wiring center and you are adding new drops, it will likely make sense to have the new cables run from the existing wiring center.

4. Have all patch panels and office jacks clearly labeled. This isn’t hard to do when things are first installed, but if it isn’t done you will pay over and over again for people to try and figure out what is what.

5. Get separate drops for voice and data. Though some think this does not matter because workstations can be plugged into most VOIP phones, having separate voice and data drops is an important issue.  Separate cable runs cost very little incrementally, allow you to easily segment VOIP network traffic, and maximize your network bandwidth.  Most of today’s VOIP phones are Fast Ethernet (100mb) network devices not gigabit Ethernet network devices.  So the result of using a single drop for voice and data in an office is that your phone gets plugged into what may be a gigabit Ethernet network jack, and forces the connection down to 100MB.  The user’s workstation is then typically plugged into the VOIP phone, but the network connection is 100MB, so the PC connects at a speed that is theoretically a tenth of what it could be.  This may be less of an issue in the future, but most of the places I work would easily notice this difference and be unhappy about it.

6. Have the final work checked by your primary IT manager or consultant before you pay the cabling company.

7. Create a network diagram with detailed wiring information and keep it up-to-date.62-200

8. Finally and most importantly, buy a cable tester, learn how to use it and test any cables you put into your network.  A tester only costs about $50 and it can easily save you $500 or more.  It isn’t unusual to find bad network cables shipped with new devices or in a group of brand new cables.  If you use a bad cable, it can cause network latency and other workstations issues which can take a significant amount of time to troubleshoot and cost your business time and money.

Recently, I reviewed an interesting network cabling job done by a contactor.  He had removed about three feet of the cable jacket from the runs he made into the wiring center, leaving all the wires exposed, then terminated the wires, and plugged them into the switch.  Of five cables that he ran, four cables were incorrectly terminated, and they were terminated in four different ways.  In this case, it is clear from was left behind that he had no idea what he was doing, but without a cable tester you wouldn’t know that.

Historically, the only consistency I have seen is a failure on the part of people doing cabling to check all of their work.  It literally takes an extra minute to check each cable run when you are done.  I expect that out of every dozen cable runs I check, I will find one that is incorrect.  On rare occasions, I’ll admit that I am pleasantly surprised by a perfect job.

About the Author: Kevin Shea is President of InfoSystems Integrated, Inc. (ISI); ISI provides a wide variety of outsourced IT solutions to investment advisors nationwide.

For details, please visit isitc.com, contact Kevin Shea via phone at 617-720-3400 x202 or e-mail at kshea@isitc.com.

Dad_Vero_ClippedQuarter end reporting for Q4 2011 was a grueling task – one that still wasn’t completed for some firms in February of 2012. I am in touch with the operations staff of representative investment firms of varied disciplines and sizes. That quarter I heard it from just about everybody. Firms were transferring accounts to different custodians, embracing new trading platforms, contemplating portfolio management system changes and enhancements to client-facing reporting as well as more robust outsourcing options … but the show must go on.

The operations staff rarely gets a break. They must deal with new initiatives as they come and still manage to get their regular work done. The act of balancing the two responsibilities can be difficult and exhausting for those faced with these demands. To quote one of my clients, “Every time you turn around its quarter end.”

As a consultant to many of these firms, I have a unique view of the daily grind of typical investment professionals. In the past, they could take reasonable breaks for lunch, etc., but more and more of the people I work with are going without the niceties of lunches out and a little down-time during the day. An illness in the family can be particularly troublesome for those working in investment operations to deal with. Illnesses are seldom convenient or negotiable.

In addition to the normal challenges that I face in any given quarter, that quarter I had to deal with one that I had no control over – the death of a loved one. My father, who, at age 73, seemed to be in outstanding health had a sudden and unexpected heart attack on the evening of January 23rd, 2012. There is never a good time for something like that to happen, but the 23rd was better than the 8th would have been for me. I was on the phone with him when it happened, and heard him utter his last words, “I feel so dizzy.” Then he collapsed.

It was so quick. I could hardly comprehend it. Over the course of the next few hours my brother and sister traveled home to New York to be with my mother as quickly as possible, while I tried to think about what I needed to do to wrap up any loose ends related to my clients’ quarter end reporting, and get home as soon as possible. After a day and half of chipping away at various tasks and setting things in motion, I needed to go home and grieve our loss with my family.

Dennis_shaking_hands_DR003My father had a successful career as a financial officer in the retail and financial service industries acting as consultant to many banks and fortune 500 companies. He kept his financial dealings fairly close to the vest, and though he had shared some of what he had done with me, I was not familiar with everything. His record-keeping was meticulous and nearly perfect in all respects but one – planning for his unexpected death. He had a joint will with my mother, but we couldn’t find it. He had assets and regular income, but getting my mother access to all of their assets would take time.

Over the next week, I went over his records, which included 22 years of tax returns and similar detailed records of my parent’s finances to lend what help I could in assessing the situation for my mother. I am no stranger to investment reports, so I winced when I saw my father’s Morgan Stanley Smith Barney statements. The production of statements as meaningless as these should be a criminal offense. I first saw statements like these back in 1987. In twenty-five years very little has changed. The statements are as dull and drab as possible. The only color afforded is the dark blue line that runs along the top. These statements are difficult for people who know what they are looking for to read – never mind those less familiar. At best, these statements are an inventory of holdings.

After looking through more of the investment statements, I eventually found summary statements that get sent out about a month after each quarter end. These statements were better, but not as good as most of what we create for our clients. Given their ability to produce better statements, firms like Morgan Stanley Smith Barney should be held to a higher reporting standard.

Over the course of nearly two weeks, my brother and I stoically exchanged quips like “Good will hunting” and “Where there is a will there’s a way” in humor that my father would have appreciated. Eventually, we found the will. It was perhaps the only thing improperly filed in his office. Throughout the ordeal, I couldn’t help thinking about how my father could have made things much easier for us by leaving us a list of the top ten things to do if he died. It might have taken him twenty minutes to put together if he had ever thought about it. I half expected to find such a list, but it was nowhere to be found – apparently, my Dad wasn’t planning to die. Here is what the list might have said:

Sorry to leave you all so suddenly, but here is what you need to do:

1. Call my attorney _______________ at _______________ , and have him execute my will. For some reason, I have the original copy of my will in the file marked _________________ at our home in ________________.

2. I have three whole life insurance policies that should provide a total non-taxable death benefit of approximately ___________________ .

They are:
a. _______________________________
b. _______________________________
c. _______________________________

Call my good friend _______________________ in the insurance business at ______________ and have him help you get the forms and file them. The proceeds from my life insurance should help with the transition period.

3. In the event of my passing, Mom should have access to the following regular income sources totaling about ________ per month:
a. ________ Pension.
b. My social security not hers.
c. The annuity.

4. All of the bank accounts are jointly held and your mother is listed as the primary beneficiary.

5. My retirement account will need to be transferred to her and she is listed as the primary beneficiary.

6. There is no money hidden anywhere. It was already raining.

7. Put the funeral on the Amex and the meal afterwards on the Underhill tab.

8. Yes. I want the cheapest casket.

9. Psalm 23.

10. Swing easy.

Love,
Dad

Using my personal experience with my father as an example, we can hopefully learn something.  First and foremost, we should make sure to acknowledge our own mortality and take the steps necessary to make our passing easier on those we would leave behind.  And, of course, since this blog is about investment operations and technology, ensure that your firm has the contingency planning, documentation, staff redundancy and training necessary to survive the loss of key personnel, whether that loss is through a sudden career change, a long-term illness, or an unexpected tragedy.

The impetus for some of the best client relationships I have ever had has been the vacuum created by the loss of personnel.  I have helped firms that experienced 100% turnover in their investment operations department rebuild, assisted those trying to make sense of cryptic documentation left behind by co-workers who left abruptly, and managed to get things running again when the person who “did everything” was severely injured in an automobile accident.

Understanding your firm’s dependancy on key personnel is very important.  Even when systems are documented, that documentation’s usefulness may be questionable.  Documentation that hasn’t been reviewed and tested might be meaningful to those who created it, but not to those trying to use it to complete a process in the author’s absence.

Some of my clients have actually drafted letters to be delivered to their investors in the event of their deaths. Those letters are in their contingency plan – what’s in yours?

About the Author: Kevin Shea is President of InfoSystems Integrated, Inc. (ISI); ISI provides a wide variety of outsourced IT solutions to investment advisors nationwide.

For details, please visit isitc.com, contact Kevin Shea via phone at 617-720-3400 x202 or e-mail at kshea@isitc.com.

In my role over the years as a designer and developer of client reporting packages for dozens of investment advisors, I typically work with decision-makers to facilitate the creation of new client presentations. Many of my clients already know what they want and just need help making it happen.

Though I have an excellent understanding of what is important to most investors and their clients, my opinion is seldom solicited. I speak up when an issue demands it, but most of the time I defer to advisors, listen, and do my best to create what my clients (investment managers) want. In many cases, the bulk of the project is spent on individual report exhibits with little emphasis on the way reports are organized and presented to clients.

I have worked with firms who have wanted to do the bare minimum for their clients (appraisal, and invoice) as well as clients that go above and beyond their duty to report. However, even those with the best reporting intentions can err by including a level of complexity and detail that will not benefit their clients.

On occasion, I am lucky enough to work with investment professionals who are modern thinkers and savvy marketers. The combination of these important characteristics leads to engaging projects and sophisticated report packages. These advisors apparently understand what their clients want to see, and are determined to make the desired reports a reality.

Instead of reporting only what is required, these advisors are trying to exceed the reporting expectations of their clients, and in doing so they engender trust. Their reports are comprehensive and transparent. As such, they have the possibility of highlighting poor performance, but that is a risk that needs to be taken by most advisors. The significance of disclosing this level of information is recognized by investors’ clients and should improve client communications.

In terms of presentation, reports should be bound, with a cover and/or table of contents and well-organized. When a client opens the report up, the most important things are first, and less important details follow. For example, there is a hierarchy to the way the reports are organized in the package such that the relationship is reported first and individual account reports later.  You can view a full report sample illustrating this approach here. In this specific example, the physical report package opens to display pages two and three of the PDF document, which are a relationship summary. The pages that follow provide account-level information.

Reports are typically bound electronically (i.e. PDFs) for those who deliver reports through portals or encrypted email, but firms send most their reports out on paper due to low adoption rates. Paper copies should look professional, and there are cost-efficient options to make this possible whether it is done through printing report packages on 11×17 stock with a saddle stitch or via manual binding of reports after they have been printed. Some of the manual binding options are fairly quick, but shops with hundreds or thousands of reports should not bind reports manually.

Another key to producing impressive report packages is the one-page summary, which allows a client to look at a single page if that is all they want to see. Usually, it is an exhibit that shows them where their investments are, how much they are worth, how they have grown, and how they have performed over various time periods. One-page summaries are also produced to provide information about specific asset types and performance. The idea is to create an executive summary. Clients really want a concise overview of their investments, and rarely look at all the other details that get sent to them on a quarterly basis.

How will you know if your reports have made an impression?

You will hear it from your clients. Even hard-to-please clients should appreciate these types of report improvements. So get to work now, and your new report packages could be ready for next quarter.

About the Author: Kevin Shea is President of InfoSystems Integrated, Inc. (ISI); ISI provides a wide variety of outsourced IT solutions to investment advisors nationwide.

For details, please visit isitc.com, contact Kevin Shea via phone at 617-720-3400 x202 or e-mail at kshea@isitc.com.

As a provider of technology solutions for financial services firms small and large nationwide, I frequently come in contact with investment firms of diverse dynamics and decision-making processes.  I am, of course, familiar with the process and discipline of getting

three separate quotes for goods and services, but even after decades of bidding on projects, it is still unclear to me what investment firms actually do with this information.

In some cases, it seems like the decision has already been made and prospects are just going through the motions to fulfill the expectation to follow a procedure and process established by their firm.  Gut decisions sometimes overrule common sense.

One of my clients actually adheres to this discipline for everything and, if the rumors are true, even gets three prices for paper clips.  In my own experience with them, they did, in fact, get three quotes for a single piece of computer equipment that cost about $75.  Considering current wage and consulting rates this arguably may not be a good use of time or money.  Perhaps it’s a more altruistic goal of keeping our economy competitive that drives their policy.

 

Opportunity                          

Recently, I was contacted by a firm looking for assistance with some Axys report modifications.  One of our competitors provided them with a quote for the work they needed.  The prospect felt that the price was too high and they solicited my opinion.  I never saw the quote from my competitor, but heard from the prospect that they wanted 3-4k up front and expected it would cost 7-8k.  In another conversation, I was told that there was also a local company bidding on the work.  That made sense to me – three bids.

I was provided with a detailed specification of what needed to be done and asked to provide them with a quote.  The firm was looking to make some modifications to the Axys report that generates Advent’s performance history data and stores it as Net of Fees (PRF) and Gross of Fees (PBF) data.  Though the requirements seemed complicated initially, it eventually became clear to me that the job simply required filtering of a couple REPLANG routines, and some minor additions.

I shared my impression with the prospect and ball-parked our bid at 3k (a 12 hour block of time) less than half of our known competitor’s bid.   I explained that the actual work was likely to take three to four hours, and rest of the time would be spent on testing, support and maintenance.  My expectation was that we would get the work done in a half day to a day at most and the remainder of our time could be used for any required maintenance or modification later in the year.

 

Follow-Up

After about a week, I called to follow up and found out that the firm was strongly considering having the work done by their local vendor, who told them it could be done for seven to ten days.  “Excuse me,” I said.  “Don’t you mean seven to ten hours?”

“No,” he replied.  He further explained that they really like using the local vendor and would probably use them for the job, which I fully understand.  I have, no doubt, benefited from this sentiment in Boston for years.  At that point in the call, I was thinking that it was more like seven to ten lines of code, but thankfully I didn’t start laughing.  I waited until the call ended.

 

No Risk, No Reward

In the end, your firm’s decision to select one bid over another is a personal one, similar in some respects to the one that dictates an investment adviser’s success attracting new clients and retaining them.  It’s about trust, performance, and the ability to continually communicate that you are worthy of one and capable of the other.  To succeed long-term in the financial services business, you need both.  Through good performance, we gain a measure of trust.  However, without a measure of initial trust or risk, there is no opportunity to perform.

About the Author: Kevin Shea is President of InfoSystems Integrated, Inc. (ISI); ISI provides a wide variety of outsourced IT solutions to investment advisors nationwide. For details, please visit isitc.com or contact Kevin Shea via phone at 617-720-3400 x202 or e-mail at kshea@isitc.com.