Unfortunately, the infrastructure you need for retail success differs from what you may already have to support your institutional business. If you choose to build this yourself, you may need to make sizable backend investments before you attract your first dollar of AUM that can delay time to market and introduce unfamiliar risks.

The remainder of this post will review the essential elements of retail SMA operations in technology, account management, and building teams. “There are perceived trade-offs between maintaining control by building and managing the tech and operations internally versus outsourcing to a third party,” notes Ryan Carter, Vestmark SVP of Outsourced Services. “You need an honest understanding of the challenges to determine the best way to manage risk and accommodate growth.”

Invest in the right technology

The ultimate sales and distribution of your SMA strategies will be conducted on sponsor platforms. But your presence on these platforms is managed through technology on your end, and seamless connectivity to these platforms is a critical aspect of the technology you’ll need to implement.

Your connectivity to all your targeted sponsor partners requires secure integration within your own technology ecosystem. There, data needs to be normalized to meet different platform standards, and connections must be built and tested to meet your and your sponsors’ requirements.

All this, plus all the usual IT chores for upgrades and maintenance, requires sufficient technology expertise and ongoing management attention.

Establish best practices for account management

Most asset managers would prefer to concentrate on strategy development and AUM growth. But successful retail SMA operations depend upon a host of backend processes that must be fulfilled flawlessly to meet client expectations and avoid regulatory concerns. Your workflows must accommodate key processes and activities such as:

• Client requests: You need a timely and automated way to ingest, route, and process incoming requests that come from a variety of different sources in various formats.
• Reconciliations: Positions – down to the tax-lot level if you are managing taxable accounts -- and transactions need to be reconciled to the custodian(s). As your retail business grows, so too does the complexity. If the recon process is not efficient and streamlined, accounts won’t be ready to trade at market open.
• Corporate actions processing: Your team needs to collect, analyze, and implement all corporate actions that impact holdings to ensure clean recon and avoid trading errors.
• Trade rotations: Unlike your institutional business practice, your retail silo may need to have precise trade rotation management policies in place – between and among clients – before you even get to the consideration of your firm’s overall trade rotation policies.
• Control checks: Anticipate managing daily performance evaluations, pricing accuracy, and the integrity of corporate actions data – all within your standards for best operating practices.
• Account administration: Be prepared to for daily deposits, withdrawals, restriction requests, and the establishment of new accounts. The previous end-of-day activities must be matched with the next start-of-day action items.
• Billing: Even if your sponsor firms perform the client billing, you’ll want to maintain billing records to reconcile what’s being remitted to you.
• Risk frameworks: You’re obligated to manage your firm’s risk as well as to meet your clients’ risk frameworks for daily checks and the thresholds that merit escalation for client validation.

Hire and train your teams

Managing both the underlying technology and operational workflows demands the expertise of appropriately trained talent. Your teams must be able to:

• Select, implement, monitor, and manage your technology stack;
• Perform all the operational and account management responsibilities listed above;
• Make and manage trades, which may mean building or expanding a trading desk;
• Maintain compliance and regulatory oversight.

For those with established institutional business, all of the above may seem familiar. But the retail market differs in both kind and scale; the specifics of each task and workflow will be different for retail, and the volume of clients, trades, and general activity will be much larger. Creating or expanding your teams will not only introduce new costs and risks, but new delays; before you launch, you must look for new talent, then train and onboard them, potentially adding months before your start date. Moving forward, you’ll need to manage the team, deal with turnover, conduct ongoing training, and more.

“In addition to time and money,” Carter says, “there’s the risk your firm absorbs with each responsibility it assumes. Any daily activities that are fulfilled manually introduce additional unwanted opportunities for error.” Maintaining in-house teams at sufficient scale places all the obligations (and inherent risks) for training, capacity growth, and monitoring controls on one party: your firm. The challenging reality is that building the necessary backend operations for retail SMAs is expensive, time-consuming, and – potentially -- unnecessarily risky.

A faster, less costly alternative

“Some firms believe that the only way to maintain their established business expectations and practices in the retail market is to keep all of the tech and operations in-house,” Carter says. “But that’s a false perspective; you don’t have to compromise efficiency and assume risk to keep control. With the right partner, tech can be bundled with outsourced operations designed to fit your firm’s business model.”

In response to client demands for greater efficiency and speed, Vestmark has already assembled both the technology and the expert talent you need to succeed. “Our technology has been proven in action, reducing the risk and expense of creating new IT capabilities in-house,” says Carter. “Our onshore teams are not only deeply experienced, but expert in multiple functional areas, streamlining your operations for greater efficiency at less risk. They can, and will, work with you to define a solution that fits your specific needs in operations, trading, and risk management.”

Ultimately, Vestmark expertise complements your own, allowing you to focus on what really matters: managing your investment strategies and achieving greater growth.

To see what Vestmark can do for you, call us at (781) 224-3640 or request a call-back here.