Compliance Agility and Efficiency in Investment Operations

For the past four years, registered investment companies in the U.S. have largely been focused on the reporting modernization regulations adopted by the SEC, such as Forms N-PORT and N-CEN.

Now, after meeting those requirements, including a significant N-PORT filing in 2019, Gary Casagrande, Vice President of Global Market Strategy at Confluence, said it’s important to look forward.

“We’ve learned a lot about our operations, about technology, and about data,” he told Nicsa members during a recent #WebinarWednesday event. “And while we’re all trying to make our operations more industrial strength and mature the technologies that we’re using, it’s time to refocus on what lies ahead.”

Casagrande moderated the panel, which focused on trends and initiatives in the financial services industry in the wake of N-PORT and featured industry leaders from Accenture, Brown Brothers Harriman, and Vanguard.

Todd Woodacre, Vice President of Fund Services at Brown Brothers Harriman, shared his perspective as a third-party administrator.

“We now have an opportunity to shift away from what we have to do, and move toward a strategic vision of what we want to do,” Woodacre said. “Continuing to partner with clients and be an extension of their shop, to understand their issues, and to leverage technology to help them solve their problems is really where our focus will lie now that we don’t have some of these massive disruptors staring us in the face.”

Toai Chin, Head of Fund Accounting Policy, Vanguard, said her firm is still very much regulatory-focused, trying to anticipate what the SEC might have coming down in the pike in terms of future changes.

“Staying on the regulatory front, we are looking at some of the SEC guidance that’s come out recently, as well as rules on the horizon,” she said, outlining a few areas to keep an eye on:

• The SEC’s Chief Accountant’s Office of the Division of Investment Management recently issued a “Dear CFO Letter,” which it hasn’t done since 2011. “They’ve made some modifications, rescinded some of their positions, added one new position relative to Section 19(a) notices,” Chin said.
• In late November 2019, the SEC proposed a rule on the use of derivatives that included proposals to add more disclosures to N-PORT and N-CEN relative to a fund’s derivative exposure.
• Chin said Vanguard is also closely watching a yet-to-be-released rule on streamline shareholder reports. “We’re interested in what their thoughts are around consolidating disclosures that are currently in the shareholder report, that are in the prospectuses and in SAIs,” she said.

Brian Cosgrove, Managing Director at Accenture, many of the asset managers and service providers he has had the privilege to work with had to find ways to push their businesses ahead, despite regulations, by doing more with less.

“Change is the norm, and what we’ve observed recently is the continued functionalization of managing change in the forms of dedicated change management leads, fund event coordinators, and greater formalization around the office of the fund’s CFO, Cosgrove said. “I think that with liquidity implementation ahead, with streamlined shareholder reporting, etc., this pattern will continue for all of us.”

Differentiation and Extending Value

Cosgrove said many investment managers are thinking outside the box and exploring new revenue opportunities. For example, he said firms are aggressively pursuing product placement on emerging digital wealth management platforms and are speaking with non-industry players about financial services.

“A lot of our clients report having conversations with Google, Amazon, and even WeChat in China, about different partnerships that go well outside the normal model,” he said. “They’re also exploring new business models, such as data and research commercialization and investment platform commercialization.”

Woodacre said BBH works to help alleviate the cost pressures its clients are facing.

“The ultimate goal we have is to continue to work with clients to simplify their oversight, allowing them to do what they do best: Capitalize on more revenue by making investment decisions and being innovative with their own product offerings,” he said. “They can leave the servicing to a company like BBH.”

Chin said Vanguard engages in a product rationalization exercise in a bid to differentiate themselves.

“We look at our current fund lineup and ask if it meets the demands of investors and what it would make sense for us to cull — for example, if two products look too much like each other,” she said. “We also want to make sure new products align with our investment philosophy, and that we have the expertise to manage and run those products.”

Nicsa thanks Confluence for sponsoring this webinar. Members can access an archived version of this content at any time via the Nicsa Knowledge Center.

Note: Although the observationscontained in this work represent the best thoughts of the individuals comprising the Nicsa panel, they do not necessarily reflect the views of Nicsa or any of its member organizations. Matters addressed in this work may touch upon legal or regulatory matters, however nothing herein is intended to be or should be construed as legal advice. You should contact your own counsel in order to obtain legal advice regarding these or any other matters.

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