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12 November 2019

Daily Reconciliation Means Daily Challenges

By Nick Nolan

Reconciliation challenges are a daily fact of life for investment firms. For buy-side firms, issues typically arise when adding new asset classes, fund structures or systems that necessitate new workflows or integrations.  The consistent theme across all firms is the need to reconcile their data to the Street every day and to fund administrators monthly. Daily reconciliations to prime brokers and custodians generally include position, transaction and cash. For fund admins, we see month-end reconciliations for position, P&L and trial balance. Each type of reconciliation presents its own unique set of challenges due to data complexities, files and mapping. The methods firms employ may vary, but ultimately their main goal is to ensure the data within their accounting system matches the record on the other side of the trade.

Three distinct challenge are likely to arise:

  • 1) New asset class data complexity

Internal systems cannot always natively handle certain asset classes or the data complexity they encounter. As a result, firms have added a series of workarounds that make reconciliation an arduous manual process. The inability to multi-match records, perform simple expressions on data (“if then” statements or “A+B”), or even lower the noise by excluding certain records from the process are issues most of our customers have dealt with at one time or another. In a recent Aite Group survey, one respondent noted that all listed positions can be reconciled on T+1, but adding OTC products has been slow due to the complexity of the data.[1]

  • 2) Data mis-match

More times than not, the data in internal systems (securities, portfolios, and custodian account numbers) will not cross-reference perfectly with external data from custodians, primes or fund admins. We have found customers spend a large majority of their time just getting “apples to apples” before they match data. Cross-referencing is an important process that needs to take place before matching data for reconciliation. If not done correctly, it can delay working through the actual breaks. In the same Aite survey another respondent noted, “The total process of onboarding a complex reconciliation takes nearly 74 days, with the majority of time spent putting together the business requirements documentation (which takes just under 30 days) and building it (which takes nearly 29 days).” The testing process isn’t as lengthy as the other two processes (only 15 days on average.)

  • 3) Data analytics

The last major hurdle is being able to see and analyze the reconciliation data. Many clients want the ability to age breaks, identify break trends by transaction type or counterparty (fund admin, custodian or prime broker), see proofs where cash balances don’t match the transactions and cause breaks, or see overall the percentages of matches by account.

Knowing potential reconciliation challenges upfront and putting in robust solutions with proven workflows can ultimately save time and mitigate operational risk, allowing accounting and operations teams to focus solely on resolving breaks.

Advent Outsourcing Services has a proven track record of helping SS&C Advent customers overcome many of the challenges above and thrive in their reconciliation process. The key functions we perform are:

  • Helping clients manage their internal and external data
  • Onboard new reconciliations
  • Remove manual processes
  • Provide Root Cause Analysis on breaks
  • Assist clients with resolving breaks at their PB’s or counterparties

Learn more about Advent Outsourcing Services

 

[1] Trends in Reconciliation Technology: AI-Trained Recs or Train Wrecks? September 19, 2019.