Jack Niven, VP of North America, AutoRek
Asset management operations are being pushed to the brink by the rising costs of operational complacency. While there is widespread acknowledgement that automation and evolving technologies hold the key to transformation, years of neglect has created an alarming prospect of widespread operational disaster.
Today, asset management and capital markets firms find themselves in an increasingly complex and volatile environment marked by macroeconomic risks, stringent regulations, shifting investor demands, and rising competition. With technological advancements like automation, artificial intelligence (AI) and machine learning (ML) continuing to reshape the industry, firms are forced to adapt or risk falling behind.
Despite the growing recognition of emerging technologies, the road to implementation requires significant capital investment, making it a daunting task for many firms. Although some firms have begun investing in automation for trading, risk management, and investment decision-making, there is still a long-standing dependence on older software and solutions. In fact, while most firms understand the need for operational efficiency, 57% of firms still rely on managing their data reconciliation through a chaotic combination of legacy technology, in-house systems and spreadsheets.
At the same time, daily transactional volumes are steadily increasing, with an expected 39% increase in average daily transaction volume across cash and securities over the next two years. Yet, 79% of firms’ reconciliation processes are already struggling to handle the growing amount of data. This paints a worrying picture of how decades of underinvestment in back-office operations have created inefficiencies that undermine performance, compliance, and scalability.
The burden of legacy systems on asset management firms
Asset management and capital markets firms are being forced to grapple with legacy systems and manual workarounds, which significantly hinder operational efficiency. A recent survey revealed that one in four firms cites legacy systems as a major barrier to delivering automation. Additionally, the same proportion indicated that legacy systems are a primary factor contributing to their operational challenges.
This failure to modernise has lasting consequences on businesses. The ongoing tension between traditional ways of working and the innovative, digital solutions which are now available has highlighted the urgent need for more efficient, scalable operational solutions to manage data effectively. In fact, 40% of respondents identified data challenges as the greatest obstacle to operational automation, while a further 35% pointed to the lack of appropriate systems and software.
Mitigating the risk of an imminent operational crisis
As firms continue to rely on inefficient systems, they are seeing rising operational costs and profitability shrinking. This is no longer just a financial concern but a strategic risk. The growing expectation for greater efficiency, accuracy, and scalability in asset management operations only adds to the pressure, making it extremely difficult for firms to meet these demands while remaining dependent on legacy systems and manual processes. Manual operations, in particular, force asset management and capital markets firms to use resources inefficiently, driving up the cost of servicing each transaction.
To avoid an operational disaster, firms must prioritise adopting systems and processes that are flexible enough to accommodate future changes. Over 80% of asset management and capital markets firms stated that adapting to changing regulatory demands requires frequent modifications to their data processing, reconciliation and reporting. Such flexibility is nearly impossible when data is managed through disparate, manual processes or legacy systems. Embracing a technology-first approach to data and operational processing is fundamental to reshaping the standards in asset management – transforming processes, delivering personalised services and enhancing decision making. Failure to modernise not only exposes firms to errors and delays but also increases the risk of noncompliance in an increasingly complex regulatory landscape.
The importance of selecting and implementing the right solutions
The path to modernisation will require firms to prioritise their resources. Competing demands often pose barriers to achieving operational efficiency, with 31% of respondents citing conflicting priorities as a significant blocker to operational efficiency. To succeed, firms must act now to modernise their operations and unlock the benefits available.
While modernisation requires an investment, firms must carefully select the right solutions that will deliver maximum benefits for the cost. Internal technology resources are often stretched thin; therefore, partnering with the right vendors who can help implement the process is critical.
Adopting the right solutions that optimise operational processes and data management practices will also help firms achieve better outcomes. With 96% of firms expecting their automation budgets to remain steady over the next two years, how firms allocate these budgets will be critical to their success. Adopting advanced technologies like AI and ML will offer huge benefits to firms, such as increased productivity (36%), operational efficiency (36%), reduced human error (29%) and the ability to handle increasing data volumes (28%).
Modern reconciliation solutions, which provide automated data ingestion, normalisation and preparation are key to improving data management and ensuring compliance. This can be achieved through auditable control, automated matching, and real-time reporting insights
The impact of automated reconciliations on operational efficiency
As asset management and capital markets firms move beyond legacy systems and manual processes, the need for robust automation solutions has never been clearer.
Automation offers a clear path to resolving operational challenges, providing firms with the tools to create an attractive and resilient business model that can grow with changing market conditions. Failure to modernise not only leads to rising operational costs but also hinders firms from focusing on high-value, strategic initiatives. Automation is no longer a luxury; it is a necessity that enables firms to shift from repetitive tasks and focus on critical business growth.
