A Case Study in Designing the Core Functions of an RIA Practice

Portfolio accounting, reconciliation and software hosting are core functions for every advisory firm. All firms understand that a change to any one of these important systems poses a challenge and a risk to their business. Any upgrade or switch must be seamless to the firm’s clients and minimally disruptive to its operational team. No wonder the prospect of technology change can be so daunting!

 

Our client, New York-based RIA Capital Counsel LLC, went through a technology stack upgrade last year. How did they manage the chaos and keep the change from disrupting their clients? How did they make dozens of critical decisions on a tight timeline? What were the most important lessons learned?

 

This is their story.

 

Can One Vendor Be Enough?

 

Two years ago, Capital Counsel was working with a single vendor for all back and middle-office services, from running and hosting Advent’s portfolio accounting software to reconciliations. The bundle approach suited the firm well for many years.  However, as Capital Counsel was growing, so was its need for more control, customization and technical expertise.

 

Having found themselves at a crossroads, the firm had two options: they could search for a single vendor to provide the bundle of services, or they could follow a “best of breed” approach and select experts in each field who would work together as a team.

 

Knowing that this decision would shape their experience for several years to come, the firm enlisted the help of Adel Madry of Purveu Consulting.

 

When Bundling Isn’t the Best Decision

 

Capital Counsel had an advantage because they knew that they wanted to retain Advent for portfolio accounting and trade order management systems. Looking at providers of middle-office services that could include Advent in the bundle was the obvious next step.

 

Purveu’s Madry carefully considered several vendors who could replicate the services bundle that Capital Counsel needed. The idea of having a single point of contact was attractive, but this approach came with some risks and trade-offs.

 

In looking at possible providers of bundled services, Capital Counsel and Madry had to face some tough questions. Does the contender have true expertise in each of the key operational functions? Are they the best at reconciliations and workflows, or are they merely “good enough” across the board? The team found that the firms with a broad range of solutions tended to be generalists. As a result, Capital Counsel would likely be on its own for customized processes.

 

Then there was the “toolbox” limitation. When you select an all-in-one vendor, your software choices are automatically limited by that vendor’s stable of offerings. That includes all aspects of technology that affect your daily workflow and client experience. No matter how well-designed a bundled service is, it still forces the firm to color between the lines. Sometimes, a best-fit solution lies outside the confines of the vendor’s toolbox.

 

Finally, there was the “all eggs in one basket” concern. Most people think of “vendor risk” as the risk that your vendor will go out of business. In reality, vendor risk also includes the possibility that the service offering may one day fail to support your business. For firms that use a single vendor, a decision to change any piece of the overall technology stack can cause a considerable disruption and impact their ability to properly service clients.

 

Building a Best of Breed Solution

 

Having considered the risks of bundled solutions, Madry recommended building a customized team of vendors and consultants instead. This approach would allow Capital Counsel to select service providers that met the firm’s requirements without having to compromise on expertise. From his experience, Madry knew that Capital Counsel had a unique opportunity to improve its middle-office efficiency and allow the firm’s client service team to spend more time serving clients and less time managing the middle office.

 

Madry introduced Capital Counsel to us at Accusource as well as to our partners at Fascet. Purveu, Accusource and Fascet had collaborated in the past. Capital Counsel would be served by the team that had successfully handled technology choices, onboarding, hosting and conversion for firms of similar size and complexity. Best of all, Capital Counsel would have the advantage of designing its middle office experience with experts to guide the way.

 

Before the project began, Capital Counsel articulated the flexibility and depth of expertise it required. As we worked together to develop a true best-practices solution, the collaboration yielded some unexpected bonuses.

 

The first one was the degree of control and access that Capital Counsel gained. A single-vendor setup lends itself to layers of time-consuming reviews and approvals. From amending transaction descriptors in the trade blotter, to importing and exporting data, to accessing Dataport, Capital Counsel found that the new best of breed setup allowed for more transparency, greater agility and faster turn-around times for fulfilling requests.

 

Then there was project management. The timeline for the middle-office transition was extremely tight, with contracts signed in January and the expected go-live date set for the end of Q1. It’s not uncommon for transitions of this size to take 6-12 months or longer. Any concerns about having to manage multiple vendors were quickly alleviated as the three firms became an extension of the client’s own team.

 

Finally, Capital Counsel appreciated the opportunity to create unique workflows and customized processes to serve their clients. Since software hosting and data reconciliation are such critical functions for any investment firm, Capital Counsel believed these processes should be tailored to the firm’s operations and investment strategy. The new solution allowed Capital Counsel to use the technology effectively so its people could do their best work.

 

Technology Outsourcing, Done Right

 

Three months later, Capital Counsel went live with its best of breed solution. With the Advent software license, Fascet software hosting, Accusource data reconciliation, and project management guided by Purveu, Capital Counsel had achieved the optimal level of expertise and flexibility in their middle-office support.

 

After the technology transition was completed, Capital Counsel executed a custodial change for most of its clients’ assets. Thanks to the new best of breed operating structure and support by Accusource and Fascet, the custodian conversion was a resounding success.

 

For us, this is an exemplary tale of benefits of a multi-vendor solution. As Fascet put it, “The best of breed approach is one way to strike the right balance between outsourcing and control.” This avoids the layers of bureaucracy and lack of agility that can plague large one-stop-shop vendors.

 

Madry saw a major benefit of the project being the expertise and real-life experience that Accusource and Fascet brought to the table. “Having the people who understand how to live with the software is critical,” he reflected. “It is one thing to build and know the software. However, hiring experts who have done this in a dedicated way and understand the day-to-day operational aspects of your business makes all the difference.”

 

Finally, there is the advantage of hiring an independent expert to vet the vendor selection. Madry, who has been in the industry for 22 years, says that independence is what allows him to push back on assumptions, outdated workflows and old ways of thinking. His advice for choosing the right project manager? “Don’t just hire someone with the right answers,” he says. “Look for a professional who asks the right questions instead.”

 

If your firm is facing a technology choice or is frustrated by your single-vendor setup, perhaps it’s time to consider your alternatives.  Call our team at Accusource to design your blueprint and help you determine what combination of service providers will give you a true best of breed middle-office workflow.

 

 

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