The Best Way to Run Your Reconciliation Desk

Asset managers must turn reconciliation into a value driver. Here’s how.

Often brushed aside as a tedious chore, the reconciliation system occupies a unique and privileged position in the back office in terms of the revelations it can open up to firms that are paying attention.

A lot of information passes across those transaction reports. Simply matching trade to trade will meet requirements, but it’s basically leaving all that information on the table.

And as British reconciliation consultant Duncan Wheatley points out, modern technology goes well beyond basic matching.

You can get his guidance in our new white paper, available for download HERE.

“Currently work flow is probably the key focus of most vendors to help users manage the process as effectively as possible,” he tells me.

“What is perhaps more interesting is the value of the data held within the reconciliation system and its application to the measurement of operational efficiency.”

The best way to do it

For Wheatley, it all starts with the data. Without complete, accurate and timely data, even the best reconciliation systems and processes will ultimately be unsuccessful.

That means getting on the SWIFT network or finding a partner who can not only access it but consolidate feeds and formats before the reports hit your system.

The more custodians you work with, the more value you can unlock by outsourcing the aggregation process.

If the number’s over a dozen, juggling formats is probably too complex to do in house. For some firms, even four custodians is pushing the limit.

Many firms start out with the best intentions regarding account data aggregation, especially when they only do business with one or two custodians that give them everything they need to access the positions and transaction-level data needed for reconciliation.

But as the firm grows, the list of custodians they work with grows as well. What was once a fairly straightforward process becomes an operational burden having to develop and support dozens of proprietary formats and systems.

And it’s often simply cheaper in the long run to bring the data in from a specialist that can in some cases augment the feed to provide a sharper view of what’s really going on in the portfolio.

Ideally, the feed should come to you already checked for accuracy and completeness. If not, you’ll need to validate it before working with it. Do the cash flows balance? Do positions and prices all line up?

Beyond the match

By this point, it should be relatively simple to match the trades and identify the breaks. The system itself might even do most of that for you.

Instead of looking at the breaks as problems to resolve, consider them opportunities to improve your overall operation.

Perhaps a prime broker constantly miscalculates trade charges or books trades late. Perhaps routing certain types of trades to one platform or another consistently delivers better execution.

Perhaps a separately managed account platform you do business with consistently does not notify your firm of cash movements. By reconciling daily, you will become aware of cash deposits in a timelier manner and be able to increase your all performance return by putting this cash to work quicker.

Keep reporting on all irregularities to help your organization learn, and automate processes to resolve issues that come up over and over.

The goal, as always, is to reduce the amount of time your team needs to spend chasing and correcting routine glitches.

If you split the duties among multiple personnel, make sure they’re all learning from each other’s experiences. This also helps prevent borderline or overlap issues from falling through the cracks in your work flow.

And in all cases, the system must generate a full audit trail to make sure the rules are running smoothly and that they’re actually catching all the errors.

Odds are good your clients will want to see that as proof of your operational strength. And the regulators will definitely want to see it the next time they check your books.

You might also be interested in…

Reconciliation Best Practice  (Whitepaper)

The Definitive Guide to Account Aggregation (Interactive E-Book)

How to Choose the Right Technology to Streamline Your Business (Whitepaper)

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