Assets under management increasing, coupled with a sound legacy business dominating market share: one could be forgiven for thinking the major platform providers have “never had it so good”. But you only have to glance at the profitability of these firms to see a rather different picture. So exactly why are platforms struggling to turn new business into top line profit?
The answer, which may come as a shock to the big players, doesn’t lie in the glitz and glamour of front office, but in the engine room of the back – where for far too long operational inefficiencies have been allowed to creep in. It’s easy to see why. A provider is hardly likely to care about what goes on behind the curtain unless it affects the show on view to the public.
But things are changing and processing income distributions is a classic case in point. We are now seeing increasing errors and hold ups. Delays between pay date and investors receiving the income are the norm for processing distributions – and that’s when a back office problem becomes a front office one.
A plethora of regulations means that providers must not be seen to be keeping cash for their own gain – quite apart from the impact it has on the investor in question, and the possible opportunity cost for them. What’s causing the problem? The simple fact is that platforms have traditionally focused their efforts on the customer experience; the front end. But as AUM has grown, operational challenges have increased with them, and the back office cracks are now showing through.
In the past the challenge of processing income distributions has relied on people scurrying away in the back office, chasing down that all important distribution declaration and subsequent income payment, usually via Excel spreadsheets. But simply throwing more resources at the problem is no longer an efficient or profitable solution. By automating the income distribution process, platforms will not just reduce their costs and risk but increase their service levels by paying income with less delay.
As we move forward the objective is clear, platforms need to embrace automation to ensure they can turn record inflows into record profits. The main providers continuing to leave operational tasks that have an increasing impact on the front office to “another day”, run the very real risk of losing out to nimbler rivals, whose slick back office will enable them to give customers a better experience. Put simply, today’s cost of papering over the cracks, is now more expensive that repairing the underlying wall itself.