The Aite Group, which advises on IT, business and regulatory issues, recently released “Wedding Divorced Data Sets: Data Maturity and Governance for Institutional and Retail Asset Managers.” This report examined changes in data management at asset and wealth management firms, including the level of engagement by senior management. The aim of the report was to provide a benchmark for firms to measure their own progress against, as well as highlighting the development of data management best practices.
As to why retirement plan sponsors have to be concerned about the data management of their asset managers, recordkeepers and other plan-related service providers, Virginie O’Shea, senior analyst at Aite Group and author of the report, told PLANSPONSOR, “From the asset management’s client perspective, the points of concern should be around transparency and risk. If key data sets are not being managed effectively and the data quality is low, then there is higher risk of transaction errors and settlement failures occurring. Risks could be overlooked across portfolios and across counterparties if data cannot be aggregated and consumed in a more intraday fashion. Regulatory reporting errors could also result in fines that cause reputational damage to the asset manager.”
O’Shea said that the report shows that there is a low level of maturity when it comes to the ability of the aforementioned firms to aggregate data, especially when it comes to rolling up legal entity data from a risk assessment point of view. She cited one example of a firm’s risk function being hampered by its inability to combine other data sets with counterparty data effectively.
More than half of firms surveyed (54%) take longer than a month to add support for a new asset class to their data management environment, though some were found to take between three and six months, the report found.
According to O’Shea, this is a significant concern for these firms’ risk management and operations teams. “This time lag can have a direct impact on a firm’s profitability and operational risk, given that the asset or wealth manager may be required to trade a product for a client without being able to adequately support it internally, thus increasing risk and reducing the level of client support provided,” she said.
In terms of plan sponsors being more proactive in asking questions about data management and security, O’Shea said, “They could certainly ask to see whether there is a data improvement strategy in place or a data governance framework for key operational data sets.” She also recommended asking whether there is a client master data program in place, which could give some impetus to the asset manager to begin improving this area.
The 47-page report consists of interviews conducted by the Aite Group, during the first and second quarters of 2013, with 26 global asset management and wealth management firms in North America, the Asia-Pacific region and Europe.
More information about the report can be found here.