Accounting for the Front Office: It’s Not Just the Ingredients that Make the Dish

Todd Snodgrass, Head of Global Support


toddMost city dwellers in the United States, if they’re up early enough, will notice the ubiquity of the food-service trucks. These refrigerated 18-wheelers, typically operated by one company,  will work their way throughout the neighborhood early each morning delivering food and ingredients to nearly every restaurant along the way— from the five- and four-star establishments all the way down to the fast-food and quick-service chains. Though they are all working with similar ingredients from the same source, each restaurant will prepare distinctly different dishes.

In a lot of ways, this is not all that different from how financial services firms and investment managers use accounting data. Generally, it all comes from the same source, but what the firm does with the data once it is in their hands determines not only how they can use it but also whether this data offers a competitive advantage. Just as the kitchen in a restaurant determines whether basic ingredients will become fast food or fine dining, an investment accounting solution and the minds that operate it determine what will come of accounting data.

For most, the primary catalyst behind implementing a new investment accounting solution is the desire to eliminate platform sprawl and operate just one accounting system that can handle multiple accounting bases, multiple currencies and accommodate multiple regulatory regimes. If the solution is unwieldy and complex it becomes all the more difficult to prepare the source data into a palatable final product. For global institutions, in particular, the shared service platform enables 24×7 “follow-the-sun” operations, with all transactions, balances and other information stored in the database as its own source, able to be used for reporting and other downstream needs. It is this data centricity, coupled with open and scalable architecture, that delivers the data quality and flexibility desired by the final consumers in the front office.

Consider for instance the complications inherent to operating multiple accounting systems with redundant capabilities. Beyond the obvious, such as higher IT and maintenance costs, the front office is often left with various and usually conflicting versions of the same data. Moreover, this platform sprawl, at best, acts as an inhibitor to the pace at which organizations can implement change or offer new products; at worst, these multiple systems will entirely preclude the front office from targeting new markets that would otherwise represent avenues of growth.

We have one client, for instance, whose legacy systems could not handle complex, fixed-income securities. To pursue that market through its existing accounting platforms, the firm would have had to spend millions of dollars to create a customized “band-aid” solution. Even then, they would have to do that again for every other new product rollout. This is exactly the answer that no front-office executive wants to hear when they are presenting options for future growth. In this particular case, these hurdles led the firm to tap Eagle to fully convert their multi-currency, multi-basis NAV accounting platform and replace their legacy systems.

For the most part, investment institutions are operating with the same source data from many of the same third-party providers, be it reference data, security master, pricing data, benchmarks, corporate actions or anything else. And to be sure, an ABOR, or Accounting Book of Record, is largely designed to facilitate back-office functions, such as trading system integration, multi-basis accounting, cash management and T+0 and T+1 settlements and reconciliations. Data centricity, however, enables institutions to easily build on an ABOR and move further along the solutions continuum to achieve an investment book record, or IBOR. When developed to this extent, data centricity satisfies reporting-centric demands as well as front-office needs for the reconciled, real-time data preferred by portfolio managers and analysts. Where the real front-office value begins to take shape is further along the continuum, with the development of a performance book of record, or PBOR, that offers performance measurement and attribution, custom benchmarking, GIPS® Composites and ex-post and ex-ante risk analysis. With this valuable functionality investment managers have the tools to help minimize risk and improve decision making.

Just as many restaurants use the same ingredients, many investment managers use the same sources for their accounting data. In both cases it is not solely the ingredients that determine the final product or its quality. With a powerful, data-centric investment accounting solution, such as Eagle Accounting, the same source data can be leveraged across an organization for multiple books of record, resulting in greater transparency and insight. So I ask: How are you leveraging your accounting data? Is your finished dish fine dining or fast food?

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