Bob Miller knows the back office.
He also knows it’s not viewed as a glamorous job. No company ranks on Fast Company’s Most Innovative Companies List on the strength of its back office.
But as a managing director at SEI, the Oaks, Pa., provider of enterprise wealth management services and solutions, Miller knows that today’s back office is vital to any business’s bottom line. More and more wealth management firms, their margins under increasing pressure, are recognizing an industry at a tipping point and a need to reinvent how they manage their P&L. For many, meeting the daunting challenges of today’s global realities demands reimagining, re-engineering and revolutionizing back office operations as a key component of a reinvented P&L.
When the back office is the backbone, protecting it matters
And while daunting to many, Bob’s company, SEI, is a company deeply rooted in reinvention. With close to a 50-year history in pioneering wealth management through constant innovation, technology automation and outsourcing services, SEI first began to forge new solutions in back office outsourcing more than 20 years ago. In fact, SEI was the first, and to this day remains the only, firm that has consistently owned the core technology and employed the people and services to run the back office operations on behalf of its wealth management clients.
Over the years SEI has become one of the largest investment processing outsourcers in the world. Bob Miller, meanwhile, has become a seasoned expert in the front-line service needed to successfully support back office service delivery.
Miller is acutely aware, that if the back office flounders, a company could very well be in serious trouble.
For example, in 2013 in the United Kingdom, some banks suffered a failure that made it impossible for customers to use their credit and debit cards. One bank in particular had to refund millions to customers after interest rate and fee errors dating back almost a decade were traced to the faulty intersection between manual and automated processes.
Bob Miller knows that these are not rare events, and it is his job to make sure that doesn’t happen to SEI’s clients.
For those who need to run and grow at the same time
Increasingly, the answer is not for banks to undertake modernizing technology and upgrading human expertise in the back office on their own. It’s just too dangerous, expensive and distracting from the banks’ main missions of serving existing clients and winning new ones to grow revenue.
SEI’s commitment to operational outsourcing was driven by its longtime vision of what wealth management would need as the industry grew up and began operating in a volatile, increasingly competitive, highly regulated, global environment. In short, SEI saw an unmet need to support the entire wealth management supply chain from front to back, and more effectively and efficiently help wealth management firms run and grow their businesses.
As a result, in the ’90s SEI began taking over and converting smaller back offices that were handling 1,000 to 2,000 accounts. Learning every step of the way, over the years SEI took on back office processing for bigger and more complex organizations. It now processes more than 768,000 end-client accounts worldwide.
Today SEI handles all the back office operations for close to 90% of its 130 global private banking clients. But in fact, only three clients do not outsource at least a piece of their back office to SEI.
So while Bob Miller’s chosen area of expertise may not win him headlines in the press, he knows it can save companies, turn P&Ls sharply upward and win him long-term clients.
This job isn't for the faint of heart
Miller, who earned a dual degree in computer science and economics from Haverford College and learned to program on old DEC machines, joined SEI in 2009. He’s tasked with overseeing the businesses of large wealth management firms that outsource their back offices to his company.
Today’s back office is essentially everything that happens behind the scenes. Whenever a client phones her wealth manager to inquire about her assets and to purchase more stocks, there are questions that demand answers, and those answers usually drive transactions. How much risk is she willing to take on? Which investments meet these criteria? What are the tax implications? And so on.
All the data presented to her wealth manager is part of the back office. Every step of every transaction must be logged, every stock and bond and other investment vehicle tracked, every penny counted, each decimal point accounted for, depreciation calculated. Along the way there are regulatory hurdles. It might not, for example, be within her risk profile to purchase options or future stocks, or an investor may have restrictions on an account prohibiting such a purchase, so this must be flagged. All this data must be processed and packaged into monthly, quarterly, or annual reports. It’s insanely complex.
First, turning a blizzard into a cloud
In the past, banks and wealth managers simply employed legions of workers to manually input data into systems. Unfortunately, it’s inordinately expensive and, often very manual and can be error prone. With so many steps in a typical transaction, a lot can and does go wrong. The human-powered back office results in a blizzard of hard-to-track paper — some 10,000 pages per person — and half of all paperwork submitted for opening an account gets rejected. That’s because each transaction depends on manually inputting data. More people inputting more data means more room for possible errors and more risk to the firm.
To reduce both risk and cost, SEI bet on the future and made a significant investment to develop the highly automated and fully integrated SEI Wealth Platform℠. SEI’s cloud-based technology supports the entire wealth management supply chain from front to back office. Additionally, SEI provides its clients with people and services for running their back office operations via a federally chartered trust company known as the SEI Private Trust Company. It is this combination of people, process and technology that makes SEI the only long-term “captive outsourcer” in the market. Uniquely, it is not only a provider of wealth management solutions but in fact a user of its own innovative technology in the back office, making the SEI Private Trust Company more automated and technologically advanced than most in-house back office departments.
Having a partner with no excuses for not performing is extremely important when a firm chooses to give up control of the back office. SEI is ultimately responsible for delivering the service levels, timetables and budgets that were originally promised.
Giving clients a new normal
But converting even a visionary wealth management firm to a modern, services-based solution is rarely easy. In fact, it can be a gargantuan undertaking. Over the years, banks and wealth managers have emphasized growth through expansion and launched a flurry of new products, all of which add layers of features and procedural requirements. Mergers and acquisitions, product launches and regulatory changes have left them with complicated IT infrastructures. Typically, these IT infrastructures feature hundreds, sometimes thousands of intermingling systems, often written in different software codes, many dating from the 1970s and 1980s.
Deciding to outsource some or all of your business is not a decision that is entered into lightly. Many of SEI’s clients have extensively considered a variety of options involving multiple firms before turning everything over to SEI. Not long ago, for example, one of the nation’s top 20 banks, and an existing SEI client, was under pressure to save millions in overhead and identify a more cost-effective expense structure. One way to do that was to outsource most of its wealth management back office operations.
The firm explored multiple options, including outsourcing the back office to SEI as well as offshoring some operations to India. But two things stopped it from selecting the latter. First, management was nervous about the security risks of storing financial data abroad directly with an overseas provider. And second, SEI had a proven and scalable back office team already supporting over 125 clients. As a result of outsourcing to SEI, the bank was able to reduce FTE expense by more than 70%.
Describing the big bank’s new normal, SEI’s Miller said, “By outsourcing their back office to SEI, we handle nearly all the day-to-day functions that they previously performed, but they still keep a significantly reduced staff who have been able to redirect their focus to more valuable client-facing activities.”
Other firms have tried to become “captive outsourcers,” whereby they not only provide proprietary technology but manage the back office operations as well. To date, no one else has been successful over the long term, largely because they have been unwilling or unable to make the massive investments needed in technology and people. SEI stuck with it — it’s their core business in every market it serves. “We are successful because we built this over years; it wasn’t always easy, but we are a company committed to reinvention and improving through failure,” Miller now says.
In fact, in 2014 with a number of U.S. clients already live on the new SEI Wealth Platform, the company invested in transparency to improve the service value chain. Putting significant focus on perfecting dashboard-like transparency, SEI Wealth Platform clients can now see whether SEI’s service level agreements are being met and can easily identify any inquiries with real-time status updates. SEI credits this latest investment for reinventing its own relationship management with its clients. With everyone using the same tools, it has changed how they interact as partners for the better.
“In the wealth management business, there is little to no room for error, and relinquishing control over back office operations is a risk for any wealth management firm; we get that,” Miller said. “SEI understands what matters most to our clients—their customers. We build our solutions with a singular focus on helping them both create lasting success. And we hold ourselves accountable to deliver.”