5 Ways to Approach Institutional Onboarding | SpringCM

Topics: Financial Services

According to a 2015 outlook report from Deloitte, the capital markets segment of the financial services sector was "preparing for takeoff;" in the wake of recent restructuring – that is, reinventing itself to do business better given today's economic circumstances and regulatory demands.

500x378_Institutional Onboarding post.pngBut two years later, capital markets firms are still struggling to do that.

Outdated processes and technology, compounded by regulatory constraints, mean capital market firms face major stumbling blocks in revenue growth—in particular, with onboarding.

So let's explore exactly why this burden of institutional onboarding in the financial industry is so tough to overcome – and why automated solutions are revealing themselves as being key to enabling capital markets to catch up with other industries.

What is Institutional Onboarding?

Virtually every profession has its own set of fundamental ground rules a potential partner has to check off before they're vetted as being OK to do business with. If you're setting up an IT vendor relationship, you go through a process of due diligence to determine if the solution is reputable. If you're partnering with a marketing firm, you review their portfolio to determine you'll be represented correctly. But in some areas of business such necessary vetting processes are far more formal and involved.

Such is definitely the case with capital markets, where regulatory guidelines demand that in order to trade with any entity, that entity has to be determined as "ready-to-trade" through a very specific process. The following scenarios demand onboarding before any trading is carried out:

  • Authorizing an associated party to carry out transactions with a sell-side financial arm;
  • Welcoming a new client to a transaction with a sell-side firm;
  • Enabling a current client to purchase a new financial instrument.

And these are cases that arise frequently. So much so that financial firms in the space have paid $18 billion in fines and litigation associated with improper onboarding.

But it's not just onboarding incorrectly that's costing capital markets big money. It's inefficiency in attempting to do it at all. It can take six to 12 weeks to onboard an institution – even one that’s already a client and needs to be onboarded for the purposes of a new financial product. And so companies report losing $150 million per day when stuck in a holding pattern due to the necessity of onboarding.

So why are companies failing to properly onboard when the stakes are so high? And what's taking so long when firms are trying to get it right?

One answer is that getting through the process has grown much more involved -- and managing the burden using the old tools of the office is easier said than done.

In light of that, let's explore five ways to correctly approach institutional onboarding.

5 Critical Ways to Approach Institutional Onboarding in the Financial Industry

Many firms that deal in capital markets are stuck using old tools to try to meet new regulatory demands. Handling complex communications between their office and the onboardee through emails and even phone calls, keeping critical information in spreadsheets and the like leads to a lot of wasted time – and money.

But there are a few critical steps institutions can take to retool their institutional onboarding process – turning it from a leaky boat into a tightly-run ship.

1. Get all the important players on board.

Like any initiative, effective institutional onboarding requires buy-in from everyone who might be called upon to take on a workflow-related task as part of their job. Given the importance of successful onboarding, and the cost of doing it poorly or not at all, co-heads of business lines, operational leadership and global technology leaders should all be brought in. Senior executive sponsors can be leveraged to make the importance of the endeavor known. Onboarding isn't just one department's job. For firms in this space, onboarding touches everyone from sales to trading to risk management to back office, so everyone must understand its importance and what they need to do to make it happen.

2. Remember the client.

Doing onboarding correctly isn't about identifying objectives in-house and foisting them on a client. It's about working with the client to make an intelligible, user-friendly experience that uses onboarding as an introduction to a productive, long-term trading relationship. A smooth, client-friendly onboarding process that works with them to make sure all the boxes are checked sets up not just the necessary legal framework to trade with a client, it gets the relationship off on the right foot by showing them that your firm is organized and conscientious.

3. Make transparency a top priority.

The tendency to want to keep onboarding within a single silo is one that inevitably leads to information getting lost in the shuffle, overlooked or left to sit on a desk when it should be moving through a workflow. Implementing technology that allows people across departments to do their part in the onboarding process and monitor where things are in a given workflow can set up a firm for success.

4. Streamline with cloud-based solutions.

Institutional onboarding is a process with a lot of distinct moving parts. Every relationship with every firm is different in subtle ways, and often requires building out custom workflows to make sure that everyone's needs are met, communication occurs seamlessly and everything is reviewed and signed off on in a timely fashion. Implementing the right cloud-based tools is crucial to build a system, within the office and between offices, that brings information automatically to those who need it, so they can take action and pass it along to the next point person until the process is complete.

5. Monitor to streamline further.

One of the most important features of today's cloud-based tools is that they offer businesses the ability to monitor what is going on through a process. So once you implement tools to streamline your onboarding process, make sure you're using all the data that the tools collect to see where you can make things even more efficient.

Documents: At the Heart of Effective Onboarding

In the backdrop of the onboarding problem, scattered around on servers and stuffed in filing cabinets, are disorganized documents. Each onboarding relationship requires a mountain of official documents to be drafted, edited or signed off on. And document and contract management is one space where automated, cloud-based solutions have been continually been proving their value.

Having the right contract management solution in place is one crucial part of the overall onboarding automation picture. And it's yielding demonstrably successful results for firms in the space.

So as you begin to think about onboarding correctly as being synonymous with bringing order to the process with tools that streamline bulky tasks, don't forget to take a look at where your documents reside, how they're managed and how the right contract management solution can make your system work better.

Onboarding Right: What It All Means

You've seen the numbers on what it's costing capital markets when they fall short on onboarding. So it's easy to see how achieving a streamlined onboarding process will yield the opposite. Onboarding correctly leads to increased revenue, decreased OPEX and a drastically reduced risk of non-compliance with legislation.

And using the right next-gen office tools to streamline the processes is critical to all of this. Once the tools are in place to build the workflows around, laborious and costly tasks and confused, frantic client company communications become easily-managed, pleasant customer interactions.

So streamline and get down to the real work – trading with your onboarded clients.

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