How innovative cash platform can help advisors reduce costs

Firm believes system's automation offers tighter controls around compliance, governance and transparency

How innovative cash platform can help advisors reduce costs

Many advisors entered the pandemic already grappling with a squeeze on profits. The statistics show that administrative and back-office costs are increasing. COVID-19, with the market volatility that rocked the industry in March, affected fees via AUM income, making business inefficiencies particularly painful.

Cashfac, a global provider of back-office operational cash management software, believes it has the ideal cash platform to help Canadian wealth managers bear down on costs. Its system provides a level of automation that can not only revolutionize the basics, like receipting cash in and paying it out, but also deliver tighter control around compliance, governance and transparency specific to the wealth management business.

To gain insights into the challenges wealth professionals are facing, the compliance required with regulators, and digital solutions that improve cash management, download Cashfac’s free whitepaper here.

The pandemic has exacerbated many administrative concerns for asset managers and investment advisors. James McGivern, head of non-bank financial institutions at Cashfac, told WP that running a business remotely increases the need for an effective and efficient cash platform. Gone are the days, it seems, of working off an Excel spreadsheet, checking trades and numbers with the colleague sat next to you.

Many companies, to cut costs, have outsourced operational duties to third parties whose economies of scale mean they can deliver the quality required for a number of clients. However, McGivern said that while you can devolve the work to somebody else, you can’t devolve responsibility.

“If you’re the manager responsible, or the director responsible, for operations at a wealth manager, if you put [cash management] out to a third party, you're still responsible for the quality of that third party's work, but the governance becomes more difficult,” he said.

“You're reliant on a third party reporting to you and you don't necessarily have the ability to force them to employ more staff or divert staff from other functions to deal with the problems or underperformance you see in how they are handling your operations.”

Again and again, McGivern said, it’s found that the third party is unable or unwilling to supply proper oversight and governance tools to those clients to allow them to keep some control over their outsourced operations, leaving the wealth manager “left hanging”. In some jurisdictions, the competition might not be particularly high, so the options to move elsewhere might not be there.

This is where Cashfac believes it can offer a solution and service that stands it apart from competitors in the space. One of its strongest selling points, from a governance view, is the reporting functionality within its system. Featuring real-time reporting tools that use graphs, charts, tables and other graphical means, Cashfac allows the third party, to not only control and scale clients’ cash operation so effectively that they can be made freely available for detailed review by the client, but also provides the reporting to the asset manager, with real-time insight, to facilitate that review.

McGivern explained: “It reports to you throughout the day in real time, so that you can get a much higher level of confidence that the job has been done correctly for you.

“If it's not, you're flagged on it, from getting a high-level warning to being able to drill down to the transaction, at a service or compliance level, with just two or three clicks. It gives you that real-time ability to monitor and either deliver your internal governance or your governance over a third party.”

In effect, it’s a defence to an asset manager when supervising the third party. Cashfac’s tools show they have taken the right steps to enforce that control. Therefore, if there are breaches, they are picked up, managed and given priority.

McGivern added: “Cashfac is a huge functionally rich system but you sell it on the dashboards because, fundamentally, everything comes together through a report where a senior manager or director, whose career is on the line for this being done correctly, can see at a glance that everything is under control.”

The white paper details 10 benefits delivered by Cashfac’s platform. Here, we are going to highlight two – the full ten can be accessed by downloading the white paper in full.   

Externally addressable client ledger accounts

The Cashfac client, counterparty and agent accounts can be made externally addressable through the banking system. This means that when clients are, for example, making a payment to their wealth manager, they can lodge the money directly to their ledger account with the wealth manager or administrator where it can then, if required, be used to settle trades, fees etc.

These ledger accounts are called virtual accounts to reflect that they are hybrids - half bank account and half general ledger account.

McGivern told WP this gives you complete scalability of your cash operations and, if you’re getting intraday bank statements like most wealth and asset managers will be, you’re getting real-time updates. Crucially, this means you don’t have to go into the bank statements to look at reconciliation; it’s posted on to the ledger because the internal account number is addressable through the banking network.

He said: “From a customer service point of view, customers get the cash quickly and accurately. It also delivers from a compliance point of view because the cash is identified, segregated, and ownership is established very quickly.

“It’s reconciled because the records agree – the bank records and client records – so it wins on several fronts: customer service, scalability of operations, and the highest level of compliance possible.”

Credit control

The system’s ledgers stores both the transactions that are about to happen, as well as the cash balance on the account. This dual ledger approach allows it to record what’s pending and about to settle, allowing the entire picture of the customer’s cash position. In turn, this enables proper credit control on accounts to prevent cash being spent twice, for example.

McGivern said: “There is active protection on the system that prevents accounts going overdrawn. Typically, when that happens, you're having to top up with the firm's money, which can have capital adequacy requirements, so there is a compliance angle to that.

“But it also allows you to do a better job of managing the customer's position and implementing proper credit control on the account. You are preventing the client making mistakes, or your fund managers making mistakes, that would put an account in breach.”

To download the free white paper, click on this link.