The back office dismantled

Hugh Griffiths, assistant director to specialist investment management consulting firm Citisoft, explains the weaknesses in the nuts and bolts of the open architecture fund distribution:

“The whole process of dealing, confirming and settling fund trades is still largely manual, leading to higher costs and error rates. There are a small number of fund settlement systems now available but these have not been widely adopted, so manual effort and the resulting operational risk are still big issues for this market.

“At the front end, dealing is primarily done with the transfer agent or directly with the fund manager, but this is usually done by telephone or email. Independent financial advisers tend to have technology in place to monitor their commission sharing agreements with fund manufacturers, but these systems are not implemented in all private banks and tend to require a lot of manual intervention to keep them going.

“In the back office, confirmations of these trades tend to be done by email. And although many private banks automate the sending of settlement instructions to custodians, the custodian service is often manual – and therefore more costly to the private bank – and can also impose unnecessary error and operational risk.