Operations departments are the first line of defense in the financial services industry — they ensure that client portfolios are properly managed, traded and kept secure day in and day out. Yet when the ops side of the business is doing its job well, clients may not even realize the function exists.
No matter what size firm you run, operations is a critical gatekeeper and value-add for your clients. If you’re thinking about developing your own, consider that a strong operations department scrutinizes all components of your clients’ investment accounts on a daily, weekly, monthly and quarterly basis — something that is almost impossible for the typical adviser, who is already wearing too many hats.
It’s almost a given that most people hire a wealth adviser for the benefits of professional portfolio management, financial planning and the personal relationship that only an adviser with their best interests at heart can provide.
QuoteWe derive great satisfaction from the fact that when we’re doing our jobs well, our clients rarely, if ever, know we exist.
But when advisers can also offer a dedicated operations department, clients benefit from the robust daily oversight of their assets. A dedicated ops team makes the entire wealth management firm more efficient and more exacting. Just as importantly, it also gives the firm’s investment strategists more time to concentrate on the markets and the firm’s advisers more time to focus on clients.
You might be wondering what a dedicated operations department does, exactly. At my firm, Adviser Investments, our ops team reviews every single transaction (yes, all of them) in every account under our management every day, to ensure that the only transactions taking place are ones that we have initiated. For instance, we may be trading one asset for another, constituting both a sale and a purchase, or checking that a wire or check has been credited correctly. Should we detect any illicit or other activity that we have not initiated, we alert both the client and the custodian immediately to address the problem. Our daily goal is to safeguard client assets and prevent any unapproved access to their accounts.
On a weekly basis, we are checking that accounts have sufficient cash for any regularly scheduled distributions to satisfy clients’ needs. If we are selling assets, we work with our account management colleagues to be certain that we minimize the tax implications of the trade while maintaining the integrity, diversification and balance of the overall portfolio.
At least monthly, we review every account to confirm that it still conforms to the overall objectives and strategy established by our clients and their advisers. We also verify, in our case, that we are using the appropriate mutual fund share class for each client, weighing the differences in embedded costs with transaction fees or costs. And we evaluate the ongoing potential to realize losses in accounts to limit future tax burdens. If we do make a sale for tax purposes, we then schedule a trade back into the preferred fund after 30 days to avoid wash sales — and, most importantly, keep track of the need to make such a trade.
REVIEW CLIENT HOLDINGS
At least once per quarter, we review client holdings and cash levels to make sure they are consistent with their objectives. If cash has built up, we alert the account management team or the particular client’s adviser with a recommendation to purchase the most underweight securities to rebalance towards our preferred, optimal portfolio allocation. And every quarter we prepare statements that include a detail of cash flows in each account as well as portfolio positions and performance statistics.
Those are the operations department’s regular duties, but if our investment strategists decide to make a trade that affects all or most of our clients’ accounts, we kick into a higher gear. When Adviser Investments’ outlook on the markets or on a particular security changes, it is operations that trades the accounts in a timely manner, avoiding short-term fees if possible and adhering to custodians’ trading rules. We have checks and balances in place to ensure that we have applied the requested changes properly and consistently. This complexity and double-checking is often overlooked by the do-it-yourself investor, and can be overwhelming to a financial adviser lacking support from a dedicated ops team.
We derive great satisfaction from the fact that when we’re doing our jobs well, our clients rarely, if ever, know we exist.
A well-oiled operations team provides meaningful benefits both to clients and the investment professionals working on their behalf, managing the day-to-day needs and ongoing oversight of portfolio activity and freeing advisers and investment decision-makers to concentrate their attention on achieving clients’ goals.
Developing a dedicated operations team should be at the top of your list of objectives if you are hoping to grow your business. Once you have an ops team you’ll wonder how you ever lived without one.