SCOTTSDALE, Ariz. - Panelists at the Investment Company Institute Operations Conference's session on efficiencies among transfer agencies (TA) warned of both the difficulties and rewards of installing efficiency-measurement systems and explained the hurdles companies face, such as determining data definitions.

"In our environment we're trying to do more with less, so we need to measure how effectively we're using our resources and driving our operations," said moderator Robert W. Smith, III, a senior vice president at Franklin Templeton Investor Services.

Metrics can help companies determine correct staffing levels, profitability prospects on fund launches and the return on workflow changes, Smith said.

Hidden Data

However, one of the obstacles the industry is facing is interpreting the current information it has. Jack Bridge, senior vice president of AIM Fund Services, the transfer agency for AIM, said the company felt the need to be more disciplined when managing head count and expenses, which prompted it to move toward efficiency metrics about a year ago.

Bridge said that a problem many companies currently face is that they rely on what he calls "descriptive data," which can show information broken down into classification and give volume numbers, but fails to put those numbers into perspective for meaningful analysis.

Examples of this would be the number of new accounts opened, number of transactions, or phone volume. "Embedded with that was very little information on how efficient the TA was in handling those volumes from a head count and expense perspective. You could discuss those issues with any cost center manager but the actual understanding of the efficiency was not inherent in the reporting that we were doing," Bridge said.

Efficiency Ratios

The company now uses efficiency ratios, which are simply ratios of existing data, primarily dealing with expenses and volumes, such as controllable expenses per head count, transactions per head count, or manual transactions per head count. And the main idea behind employing these kind of ratios is to monitor changes in them and to "really drill down into the numerator and denominator to explain variations in the business from month to month," Bridge said.

Jennifer Allen, manager of transfer agent administration at Franklin Templeton , said that one of the keys is to define methodologies early on and to look at existing reports. This, she maintained, can help operations executives figure out what the raw data is actually telling them about their company. Additionally Allen recommended getting both employees and management on the same page with regards to company goals.

One of the challenges is determining what will be included in both the numerator and denominator and how to define variables such as controllable expenses or head count, Bridge said.

He claims that Aim Funds Services spent most of 2002 getting definitions standardized and has come up with a list of 22 efficiency ratios. Once the initial groundwork was laid, the company took the critical measures and established some targets. The company also pulled together historical data on efficiency ratios to look for anomalies in the data.

One of the difficulties, though, in doing so is the lack of available benchmarks in the industry. "It would be great to know what our competitors considered to be an exceptional level of expenses per head count in a transfer agency situation," Bridge said. "We have no idea what that number is."

A Quota to Grind

Bridge said one approach to get around this dilemma is "a straight top-down approach," where managers are told to reduce controllable expenses per ratio by a given percentage then each supervisor is left to figure out a way to accomplish that in the upcoming year. He also said that the "bottom-up approach" is a possibility. That is where each cost center manager commits to a certain level of controllable expenses.

Following that, Bridge said the company is installing a reporting infrastructure. This is the stage in which the company has to start making real-world decisions, he said, such as whether or not it is going to have operating divisions prepare their own efficiency ratio data or by a neutral third-party area, he said.

Tyler Derr, a vice president at OppenheimerFunds added that one key is going back and interviewing marketing and sales departments to find out what products the company was distributing. Also important is creating a matrix of the services that were required to support those customers they were selling to and the channels they were selling through. He also said that it is important to look at how a company distributes products through advisers and to understand the needs of the consumers that are getting the new products.

Derr said OppenheimerFunds' team, in terms of analysts, is a cross-functional team of the existing business units of supervisors and managers, who use some very basic tools, such as Microsoft Access and Excel. However, the tools are not the difficult part to install in the system; it is the data definitions, such as determining whether a new account is really a new account.

As for Franklin Templeton, Allen said the company has one project manager who is dedicated to performance metrics tracking, along with four analysts. "Our group is relatively small and that works to our benefit to keep our data consistent across our business lines," she said. She agreed with Derr that data definitions are probably the toughest part of the process.

700 Reports Down to 20

"We only have 15 metrics that we track as an organization, which is a good step forward for us, because when we started this process, we probably had 50 different metrics that people thought we should be following," Allen said.

"We had over 700 reports that were being generated on a monthly basis within our organization. We've been able to consolidate that down into 15 [metrics] and down to about 20 reports that we run on a monthly basis. So significant improvement can come from really driving a process correctly," she said.

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