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Mandatory vs discretionary documentation: a tale of two processes?

ReportingRobert Corbally and Abbey Shasore look at the treatment of mandatory and discretionary documentation within client reporting.

What impact, if any, does the obligation around issuing documentation have on how they are produced within asset management firms? For example, are mandatory documents such as KIIDs (or KIDs) dealt with differently to discretionary documents such as factsheets?

The co-existence of mandatory versus discretionary documentation within client reporting is an interesting one. Over many years of working with blue-chip buy-side firms, it is not uncommon to see a divergence between functions producing documents and the functions checking or approving those documents. In producing documents, typically a Marketing team will be seeking to create appealing materials expounding the virtues of their funds, giving them prominence in how and where they are displayed. At the same time, Legal and Compliance is busy reminding Marketing that there is a swath of mandatory documentation that also needs to be made available – think offering documents, KIIDs/KIDs, financial statements and various disclosure documents. 

This gives the production team two challenges. Firstly, they must build a layout to incorporate this information alongside their (more) creative promotional content. Secondly, they may also decide to apply a corporate look, such as layout, font and colour schemes, to documents that are heavily prescribed by regulatory requirements. Both challenges require a symbiotic relationship with those responsible for checking and approving content before production.

Joined-up thinking
Marketing correctly seeks to create a seamless user experience across materials, but this ethos also applies to the production and data source elements involved in creating content. From an operational standpoint, organisations must therefore think holistically about their investment reporting. Part of that process is managing the different skills sets and not discouraging either team from doing their job. Another task is to make the production of mandatory and discretionary documentation a seamless experience.

Is the production of a KIID so different to that of a factsheet? On one side of the coin, yes, they are different because a KIID is mandatory, and a factsheet is discretionary. On the other side of the coin, they are not different because they are both documents with x number of pages, colours, and content. 

"If an asset manager doesn’t produce a KIID then it will have a regulatory breach and if it doesn’t produce a factsheet, then potential clients will be frustrated."

If you get one wrong, what are the implications? Arguably, the implications are the same. If an asset manager doesn’t produce a KIID then it will have a regulatory breach and if it doesn’t produce a factsheet, then potential clients will be frustrated. From an operational perspective, is there any difference? Yes, a firm would always prioritise the KIID because of that regulatory obligation but from a holistic, reputational standpoint, the factsheet is no less important.

Scale matters
One of the key considerations here is the quantity of content that a firm needs to produce. At face value quantity equates to complexity; however, for formulaic and prescribed documents, this does not necessarily need to be the case, and they can be managed very efficiently through correct workflow processes and assignment of tasks. What firms really don’t want to have is separate teams working to generate documents in ‘splendid isolation’. This would mean they are not managing the process holistically and not managing their data centrally, so they would significantly increase their costs and operational risk.

Whether a firm has a single team or multiple teams creating documents, the source of much of the content, data-wise, will be the same and the processes are likely to be very similar. If both regulatory and marketing documents are produced by the same team, it is simpler to control consistency. However, if separate teams are involved, either in-house or third party, then setting the boundaries is critical. From meeting corporate marketing guidelines to sourcing consistent and accurate data, the end results all need to appear as coming from the same asset manager.

Of course, asset managers must ensure that their numbers are consistent so that when the same fact is presented in multiple documents, it is actually uniform. Even if the data doesn’t originally come from the same place, asset managers should bring it together into a central reporting repository from which all facts used in documentation are then sourced. This will mitigate all sorts of risk, both reputational and regulatory. If everyone is confident that the source data is correct, reporting processes will immediately become more streamlined, as will sign-off. 

Getting your data right
From the perspective of technical approval, how much influence should that function have on the operational set-up of the reporting function? The answer is they should have enough influence to ensure a more holistic approach to generating reporting data, as opposed to relying on data silos. A disjointed approach, where multiple production teams (such as Marketing and Regulatory Reporting) are working independently, means the same numbers need checking and re-checking manually. By engaging the teams involved in approvals (such as Legal, Compliance, Product) so that they understand the data source (how it is fed, managed, monitored and used), they can build confidence in the source information and the processes around publishing that information. 

It should be noted that updates and error processes matter too. How are they identified, notified and resolved? With a single data source, errors and updates can be implemented to a schedule and notified to all parties with immediate effect. No more ad hoc updates of individual records – all data users feed from the same source. This commonality of data also facilitates greater control to the asset manager when elements of the process are outsourced. Confidence of the business in the integrity of the data will lead naturally to improvements in the checking and reviewing processes, which streamlines production. It really is a win/win situation of bringing accurate content to the market more efficiently.

"Confidence of the business in the integrity of the data will lead naturally to improvements in the checking and reviewing processes..."

It is clear that creating a symbiotic user experience of collateral, combining both required documents (driven by regulation) and promotional documents (driven by Marketing), is key.

If an asset management business can agree that the source data for all of its reporting is correct, then it can please all stakeholders at once – risk of error is mitigated, production is nimbler, and content is accurate and informative. As a result, document production is aligned with the core tenets of asset management: adding value to clients whilst mitigating risk.

* Robert Corbally is COO, Variety Capital and Abbey Shasore is CEO, Factbook.

© 2022 fundsTech

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