Why You Should Care About the 4th Industrial Revolution

When we speak to our clients about Industry 4.0, the most common question is, what is it? Why should I care? The term itself does not matter. What does matter is, the name acts as a focal point to enable FinServ to focus our clients on what does really matter.

Whether it is: 1) New technologies embedded in the best industry applications, 2) New agile governance models being put in place, or 3) The core aspects of data privacy that are drastically changing, we believe our client’s need to be ready to adopt and adapt to each of these disruptive forces.

Sears a Cautionary Tale

I was recently watching a piece on how Sears, a company that once was on top of innovation is now going out of business. Each of these anecdotes shows that even the best of funds could end up losing its investors if they do not continue to innovate and take advantage of what technology is offered. There are always hungry new funds, just like Amazon was to Sears that will be more than happy to take your position and your investors if you do not stay on the leading edge. 

The Key Challenge

Due to security concerns our industry is a laggard to most new and emerging technologies. While many firms took advantage of the public cloud, a surprisingly high number of our clients are still hesitating to take advantage of this key resource.

We agree with our clients in terms of utilizing the highest standards of protection for their client and investment data, but this should not keep you from adopting technologies in an intelligent manner. It takes extra work and due diligence, but these technologies like public clouds can be safely and securely implemented for any firm. The most critical step is to hire an expert in the technology to ensure it is configured with all the most important safeguards in place.

When you set up a server on Amazon Web Services (“AWS”) you can leave yourself completely open to attack, or you can configure with all the tools AWS provides to be more secure than your own private cloud. It only requires the expertise to know how to complete the configuration.

Speed with Purpose

The terms speed with purpose was  something I first came across during my time at KPMG. It was used to describe one of the core values of the firm. I always loved this phrase, because it described something I always believed in, that you should take action and produce outputs and outcomes as quickly as you can. The word purpose added something essential. Purpose highlights that you should not be reckless in your pursuits, and it further suggests that you could act thoughtfully at the same time.

We believe this is exactly how our client base should act towards the technologies and changes that relate to the 4th Industrial Revolution. Our clients should dive into these technologies now, while ensuring that as they implement the changes they are taking the proper precautions, and putting into place the proper controls that will continue to protect their businesses from crucial errors.

Applying the Technologies to our Industry

One key technology Artificial Intelligence (“AI”) is critical to our industry. AI has been a large focus on many funds for several years now.

Whether it be the Investor Relations group using predictive analytics to identify the best investors to pursue, or the front office using prescriptive analytics to draw up specific recommendations in investing you can’t deny the value of these technologies.

Lessons from Data Warehouse Experiences

The biggest barrier to getting on these technologies was the cost and time to set them up. Over the past decade, many clients engaged FinServ in discussions about creating data warehouses. Less than 10% of those clients actually took any real steps to create them, and far fewer ever realized the final goal or benefits.

Thanks to SAAS-based solutions and virtual computing new AI engines are popping up all over the place. These solutions offer a very low-cost entry to powerful AI engines. Microsoft, Salesforce, and SAP just to name a few vendors offering AI platforms that can be acquired and setup in weeks or months.

We strongly suggest before selecting one of these platforms that you do conduct a full vendor selection. Like all system selections ensuring you are picking the right solution that fits your specific requirements is critical. Each of these AI platforms do have their own strengths and weaknesses and aligning those to your business is paramount. As part of this selection process we endorse vetting the security and controls provided by each of these vendors.

One Real World Example

Up to this point we have spoken about why you should adopt new technologies and spoken to most of the reasons firms hesitate to act. Providing an example how a technology today can enhance one common pain point may be the best way to bring people over to adoption.

From the dawn of computerization the dependency of getting users to enter their data into the system has been a large issue. Now with our smartphones we have a device that when combined with AI technology can alleviate that issue. Salesforce introduced Einstein Voice which leverages your voice allowing you to dictate important notes into your smartphone and the AI portion of this solution than intelligently identifies the components of your data and links that to your CRM / sales system as an example to route your information intelligently to those people in your firm who need to act on that data.

Einstein Voice

The Bottom Line

New technologies are arriving at our doorstep with regularity and speed we have never seen before. Knowing which ones to choose and how to safely and effectively implement them can be daunting. You should not let security concerns hold you back from ensuring your fund can compete for investors who are becoming more savvy and discerning about their choices of funds. If anything adopting these new tools will ensure they see you as an innovator worth investing in.

FinServ can help you plan for and implement these technologies in a safe and effective manner with time tested methods and the speed required to have you up and running in the most expedient time possible.

To learn more about FinServ Consulting’s services, please contact us at info@www.finservconsulting.com or (646) 603-3799.

GDPR and Data Privacy

Several large Silicon Valley firms have been in the news frequently regarding what data they store about you, what they do with that data and what they tell their consumers. The question becomes what rights do you have in an online world and what standards are applied to these companies that store your data. GDPR (General Data Protection Regulation) aims to answer that. GDPR went into effect on May 2018 and aims to standardize and protect the rights of EU (European Union) citizens in regards to their PII (Personally Identifiable Information) data.

This regulation applies to all EU citizens regardless of location meaning that an investment manager based in the US must abide by these regulations if any of their investors or employees are EU citizens. GDPR may seem a bit draconian but it is the trend (see the Congressional Hearings on the prominent Social Media companies) and other countries will follow the EU’s lead and craft their own PII protection laws.

As an example, the US is considering their own version of General Data Protection Regulation (GDPR):

Click this Link for the Details on US GDPR

Compliance using Document Management Technology

In addition, GDPR will continue to evolve to protect the changing definition of PII data and its usage. For your firm to be able to meet these laws effectively, we recommend using a Document Management System (DMS) such as Microsoft SharePoint Online. Several key DMS technologies will facilitate your regulatory compliance and the ability to pivot rapidly to comply with any new regulations or changes.

• Data Inventory – Regulations such as GDPR place an emphasis on knowing what personally identifiable information (PII) data you store and the ability to extract it on request. In Office 365, Data Loss Prevention (DLP) can identify over 80 common sensitive data types including financial, medical, and PII. EU common sensitive data types are pre-defined and custom sensitive data types can be added to properly categorize current and future definitions of PII data. Furthermore, all Office 365 products (i.e. Outlook, SharePoint, Skype) can be searched through at the same time using Office 365 eDiscovery resulting in a comprehensive PII search
• Data Protection – A common theme of regulations whether it be GDPR or the SEC Safeguards Rule and Identity Theft Red Flags Rule is the safeguarding of data personal and confidential data. Using the Office 365 Security & Compliance Center, you can use DLP to lock down data by preventing internal and/or external sharing of the data. Furthermore, with data on the cloud, you can enable an additional layer of security through Service Encryption with Customer Key which encrypts your data at rest wherever it may reside
• Data Retention / Destruction – Regulations also require Account information and Books and Records to be kept for minimum periods of time (for example Account Information must be kept for 6 years). SharePoint can automate these Document Retention rules using Document Retention Policies eliminating any human error. Retention policies can also be set on a more granular level to govern specific types of documents such as Financial Documents. Once the data is no longer useful or required to be kept, data can also be purged using automated rules and workflows.

For additional information from Microsoft on how they meet GDPR requirements, see:

https://docs.microsoft.com/en-us/office365/securitycompliance/office-365-information-protection-for-gdpr

FinServ Can Help – FinServ is a Microsoft Partner and Integrator. We have done numerous Document Management system implementations for asset managers and approach the project from a policy view. We will help you define your Document Management policies first to meet Compliance and GDPR and other regulatory body requirements. We understand the business and work with you each step of the way to implement the Document Management system on time and on budget.

To learn more about FinServ Consulting’s services, please contact us at info@www.finservconsulting.com or (646) 603-3799.

If you get a sense of déjà vu when you see the headlines, no one would fault you. In a scene reminiscent of the 2008 subprime mortgage/CDO market, the CLO market has seemingly reached a frothy tipping point. Here’s the New York Times cautioning about the rise in CLO issuances. Here’s a Bloomberg article on AIG, no less, buying a credit manager specializing in CLOs. Here’s another Bloomberg article on a husband/wife-owned Kansas money manager that deals in CLOs. And yet another Bloomberg article on how everyone involved with CLOs gets rich. Even the actors are the same. Greg Lippman, former head of ABS trading at Deutsche Bank has acquired a CLO manager in his current role. And imagine – these links are just from the past two to three months – but you get the idea.

Business case for vendors

In the current low rate environment, investors are chasing yield, but they’re not the only ones. Everyone’s getting a cut of the pie, including CLO managers, structurers, lenders and software firms. This boom has meant an uptick in business for vendors we work with who help operationally manage these loans. This financial technology partner has grown by leaps and bounds in the past 3 years. Their client list reads like a who’s who of the world’s top credit/loan investors.

Vendors, quick to capitalize on a competitive advantage, have made investments into their portfolio management/trading/risk capabilities. Whether it comes from buying out a competitor with a built-in client base (see NEX Group, which started out as ICAP, who bought Traiana, but now lists the following as part of their extensive post-trade offering: Brokertec, TriOptima, Abide and Enso, among others) to investing/growing organically, the post-trade technology market has always been quick to partner with regulators, strategically-inclined to merge with competitors and eager to adopt new technologies in order to provide the best-in-breed offering.

The Trading Technology Landscape

Similar to the different flavors of derivatives that exist in the traded market today, the different capabilities needed to service a front office derivatives desk can include any or all of the following:

• Trade Capture
• Market/Reference Data
• Analytics
• Risk, in all its flavors – market, credit, counterparty,
• P&L
• Trade Support/Lifecycle Management
• Limits & Limit Management
• Regulatory – VaR, backtesting, counterparty credit risk, XVA
• Sales – pricing, structuring, MIS

There’s no one vendor that can supply all of this, but that’s not for want of trying. As I stated above, vendors are racing to complete their product suite with most, if not all, of the capabilities listed above. Some try and succeed; others don’t succeed and either get picked up at bargain bin prices or merge with a competitor.

The Bottom Line

The market works in cycles. Yesterday’s ABS/MBS is today’s CLO, which can lead to tomorrow’s next financial-engineered wonder product. Whether it’s a hedge fund looking for alpha on behalf of their investors, to money managers acting in the name of fiduciary responsibility on behalf of a municipality’s pension, they will opt to invest in new products or change their business workflows in response to some regulatory requirement. When that time comes, this will mean delivering technological change or effecting business process improvement. Replacing a new post-trade solution or implementing new workflows using a vendor product can seem daunting, but FinServ can help you efficiently plan for and implement these technologies to suit your unique firm needs. Our expertise in data, systems, and strategic consulting ensures that our clients receive tailored recommendations for the right post-trade solutions they need.

To learn more about FinServ Consulting’s services, please contact us at info@www.finservconsulting.com or (646) 603-3799.

With Workday Financials gaining popularity thanks to its customization capabilities, we expect that organizations who have adopted Workday will have their hands full addressing the growing regulatory requirements, particularly around documentation of system controls.

All your departments are affected

Surely, we expect that Corporate Finance, Accounting, and Internal Audit departments will be pressured from management and regulatory bodies to maintain tight controls and processes in response to the adoption of highly configurable solutions like Workday. This is because Workday customers have full ownership and ability to make changes that have material upstream impacts on financial statement reporting to investors.

However, it’s important to note that this will also affect all your departments that interact with Finance and Accounting functions, including your Shared Services, Information Technology, Legal, Valuation, and third-party administrators, and others.

A digital footprint in Workday

Workday has done extremely well by developing an audit trail of changes to every record, configuration, and policy into its platform. The historical log of changes certainly is one of the system’s core strengths. In fact, you can’t even delete instances within the platform. Simply because wiping your history is just not a concept that exists in the world of Workday. Instead, you would need to correct, inactivate, or adjust the component that you’re looking to change.

Let’s take this example: The bank settlement details for one of your suppliers is incorrect. Rather than deleting this, Workday provides the option to “inactivate” or overwrite the details with the correct data for the existing line item. When that item is changed, Workday retains a record of this change activity: the old value, new value, who changed it, and when. 

But what’s missing?

It would be nice if Workday delivered a report that captures the changes to security roles which have the ability to impact financial data. This is an important consideration if you’re familiar with the power of Workday’s security model. A role assignment within the system is not as one-dimensional as providing Sally Hansen the ability to record revenue entries. Such requests should be taken with careful evaluation of the various processes, domains, or functions allowed within that role due to the upstream impacts.

As an example, you may want your payroll processor to post monthly payroll accruals. A seemingly basic function, which is allowed through Workday’s delivered Accountant role to create journal entries. However, you may hesitate before assigning this role as it also allows users to also create cash payments. You can see where things can get complex because someone who has access to both cash and payroll would represent a clear violation of segregation of duties. This would obviously be subject to criticism during an audit as a weakness in the firm’s internal control structure, and required to be remediated to obtain a clean opinion on the financial statements. Therefore, you may want to segment access by creating a new security group with specific access just to post journal entries before deciding to assign roles with core Finance functions.

It goes without saying that the Security Administrator is a very powerful role, one with the ability to change and administer any role within the system without restraint.

So if you don’t have something similar already, it’s worthwhile to create a custom report showing security changes to those key Finance roles. You can hand the report off to senior management, internal and external auditors, and not only will you be addressing a key risk area, but you also gain visibility to what your teams are doing, and you can really manage your people’s roles in a highly configurable platform like Workday.

What is Salesforce Einstein?

Salesforce Einstein is a suite of AI tools embedded into the various Salesforce apps (Sales Cloud, Service Cloud, etc.) packaged into the form of a digital smart assistant. This allows existing Salesforce users to leverage powerful AI capabilities from a platform they already know and love.

The goal of Salesforce Einstein is to make user lives even easier with personalized recommendations, intelligent search results, and task automation. That includes an Amazon Alexa inspired voice assistant called Einstein Voice that can listen, transcribe, and analyze user questions and more importantly, a business intelligence engine to perform the heavy lifting to discover new insights, predict the likelihood of outcomes, recommend strategic actions and automate routing tasks.

Why Should You Care?

A McKinsey & Company study estimates that AI technologies can increase labor productivity by up to 40%. The robot revolution hasn’t started quite yet, but the productivity gains in the next several years could completely reshape the global workforce.

AI technologies like Salesforce Einstein can help your best employees eliminate repetitive work, giving them more time to work on higher value creative and strategic efforts. Examples of specific Salesforce customer success include:

• 35x increase in lead conversion of top-ranked leads
• 20% increase in sales rep productivity by reducing manual data entry
• 56% increase on open rates on new product emails

Additionally, AI technologies go beyond simple automation or robotic process automation by being able to consume data and derive independent and strategic context. For example,

Salesforce CEO Marc Benioff already uses the Einstein smart assistant in his Monday morning executive meetings:

“We have our top 20 or 30 executives around the table. We talk about different regions, different products, different opportunities. And then I ask one other executive their opinion, and that executive is Einstein.

And I will literally turn to Einstein in the meeting and say, ‘OK, Einstein, you’ve heard all of this, now what do you think?’ And Einstein will give me the over and under on the quarter and show me where we’re strong and where we’re weak, and sometimes it will point out a specific executive, which it has done in the last three quarters, and said that this executive is somebody who needs specific attention during the quarter.

I have the ability to talk to Einstein and ask everything from product areas I should be focusing on, geographies I should be focusing on, the linearity of bookings during the quarter. Every question I could possibly have, I’m able to ask Einstein.”

The above example really opens your eyes to not only the possibilities for AI technologies in the future, but also what they can already achieve today. A few industry specific ideas:

• Fund of Funds Portfolio Manager: Einstein, I am visiting Palo Alto next week to meet ABC Capital for a potential new investment. What are the top fund prospects I should also try to meet while I am there?
• Asset Manager Investor Relations: Einstein, we are launching a new 40-Act fund next year. Who are the investors I should target first?
• Commercial Bank Institutional Relationship Manager: Einstein, I have a monthly client meeting with XYZ Asset Management today. What is the client temperature and key insights?

The Bottom Line

The future of the new digital workforce is deeply intertwined with AI technologies like Salesforce Einstein. We are currently reaching a tipping point where many of these technologies are within reach but understanding how to leverage these tools within your unique organization will be key to maximizing your ROI.

Getting started with an AI platform can seem daunting, but FinServ can help you seamlessly plan for and implement these technologies to suit your unique firm needs. Our expertise in data, systems, and strategic consulting ensures that our clients receive tailored recommendations for the right AI solutions they need.