TheBooks

Like many small businesses, CTAs frequently hold onto processes much longer than they should.  This is particularly true of those related to the operation of the firm.  Inertia, a perceived lack of time to look into better approaches, and short term cost avoidance are a few of the reasons this happens.

While sustainable in the short run, not maintaining and enhancing an organization’s operational infrastructure can be highly detrimental over time as it limits the firm’s ability to adapt to changing market forces and can leave it at a disadvantage compared to other firms.

Compounding this situation is the fee compression that seems to be affecting all advisors.  Given the reduction or elimination of management fees, operations must be as efficient as possible in order to maintain profitability.  Processes that are tedious, error-prone, and not scalable must be reviewed and replaced with ones that are streamlined, automated, and not dependent on any one individual if the firm is to be positioned for long term stability and growth.

While certainly not exhaustive, if any of the following describes your current operation, it’s probably time for you to look into ways to upgrade your processes:

• Going through broker statements by hand to perform trade reconciliation.
• Monthly numbers posted during the second or third week of the following month.
• End of day trade files to send to brokers and administrators are prepared by hand.
• When a key back office person is sick or takes a vacation, the firm goes into a panic.
• Values from statements are keyed into Excel to produce performance numbers.
• Monthly rebalancing is one of the most dreaded activities in the firm.
• Operational due diligence always has its issues.
• The mention of another clearing broker puts fear into the eyes of the operations staff.
• Even though all trading is done electronically, post trade processing involves a series of disconnected operations that are a combination of manual and (hopefully) automated processes.
• Error rates and long hours are directly correlated with trading volume.
• Preparing invoices and getting paid from FCMs is a dreaded, manual task that takes hours.
• Resolving trade breaks is a time-consuming, manual process with lots of cut and paste operations.

Rather than addressing operational issues piecemeal, it is frequently a better strategy to review the entire process and incorporate a toolset that encompasses all aspects of the operation.  Doing so allows you to take advantage of approaches that have been time-tested by a wide range of advisors and at the same time can be faster and less risky to implement than a number of custom, point solutions.

Beyond solving specific, tactical issues involved in running a CTA, the implementation of an integrated operating system also provides the following strategic outcomes for the firm:

• Simplified, Scalable Operations
• Minimized Operational Risk
• Highly Responsive to Investor Data Requests
• Streamlined Due-Diligence
• Reduced or Eliminated Trading and Reporting Errors
• Timely Reporting of Performance
• Reduced Overhead

This results in making the firm a better place for capital sources to entrust their investment dollars.