Institutional Onboarding: What’s The Problem?
Institutional Onboarding: What’s The Problem?

The institutional onboarding process is often ‘broken’. It is not scalable, can delay revenue, will drive up costs, and can even negatively impact the experience of Investors/LPs and your staff.  Given the many teams, systems and data involved, the process needs to be intelligently ‘glued’ together to leverage what you already have in place.

The Dreaded & Complex Onboarding Process

For most institutional asset managers, the onboarding process fills entire teams with a heady cocktail of dread and frustration.  Many other processes have been automated or at least properly digitalised.  Institutional onboarding however stubbornly remains a manual, labour intensive and hard-to-control process. The workflow combines multiple siloed teams, spanning Business Development, IR, Operations, Tax & Legal (including 3rd parties), Finance, IT and so on… across multiple geographies and time zones.  You could say a logistical nightmare.

Manual Processes, Hard to Audit, Outdated Tools

Typically onboarding processes have grown organically and rely heavily upon a mix of email, excel and cumbersome forms (sometimes paper) that lead to data often being captured across multiple systems that offer limited, to no, integration options.

Not only do these slow onboarding down but they’re also costly – in terms of delayed fee generation and having a negative impact on client experience/company reputation.   Word getting out up and down the street of irritated institutions, fielding requests for further rounds of now duplicate information from another geography or team, can have damaging consequences. In addition, the onboarding process is hard to properly monitor, bottlenecks are not visible, and you are dependent upon a small number of skilled specialists working with sub-optimal tools.

 …Just Who Is The Beneficial Owner?

Onboarding institutions, compared with B2B-type onboarding, requires much investigation and understanding to enable institutions to sift through the sometimes-opaque layers of a new client’s legal entities…LEI upon LEI (=legal entity identifier). Identifying accurately the information about an entity’s ownership structure is critical to answer the question of ‘who is who’, and ‘who owns whom’. During the process institutions run a gauntlet of significant KYC/AML exposure and risk each time a new entity is onboarded. This is further compounded considering the current geo-political landscape in 2022.

Adding a further layer of sophistication to what is already a complex process is that these checks are not a one off, per new institution being onboarded. Moreover, scheduling and maintaining periodic KYC/AML reviews/ records is now an essential practice as institutions respond to ad hoc changes that can ripple through legal entities right the way from/to the ultimate beneficial owner (think Russian sanctions lists changing daily).

Mandate Compliance: Another Source of Complexity

The upside of onboarding big investors/LPs is the amount of capital they can commit…the downside can be the often-unique strings attached.  Large investors/LPs with their own portfolio approach frequently insist on special terms, typically covered in a variety of side-letters that can include everything from concentration measures (sector, geography, assets) to ESG, reporting, co-investment rights, etc. The silver lining for this operationally challenging customisation is the improved ability to onboard SMAs (separately managed accounts, a ‘fund of one’).  We expect this trend to continue, as SWFs or large pension funds develop increasingly sophisticated portfolio management needs and technology – intelligent workflow, tooling and data indexing can accommodate this. In 10 years from now, maybe SMA will be the only way to get big investors onboard?   

Negotiating new client mandates is often a hard-fought battle. The BD or Sales Professional will push hard to close a new client, while management, IT and operations (in particular) look to ensure they understand the downstream impact of would-be new business requirements. Are these new requirements cost-effective? Possible to comply with? How much pain will accommodating them cause the business? Downstream, mandate compliance heavily impacts investment strategy, asset allocation and reporting (think ESG reporting).

Casting one eye downstream early during the onboarding process begs a good question… how can a firm competently manage mandate compliance, and ultimately risk, without a digitised subscription and side-letter process delivering robust data?

Ask the Legal team who everyday spends hours sifting through and painstakingly drawing conclusions from a 10,000-line spreadsheet, or the trader who cannot execute a trade for fear of a compliance breach. Both will come to the same conclusion – having a digital solution driving data through a compliance engine is the preferred choice.

Take Care Of Your Onboarding Data & Your Data Will Take Care Of You

Ensuring that onboarding data is captured, indexed and readily made available to be ingested and integrated by other tools is critical.  There are also two further important points that must also be well understood: One is clear data ownership (the key ingredient is well understood digital processes) and, the Second is the relentless use and challenging of that data at all levels of the organisation.  This recipe is how you get to high quality, actionable data which will support your onboarding process, and your career.

How can we help you?

At psKINETIC we specialise in ‘intelligently’ gluing systems and processes together. Our experience and deep understanding of the FS industry enable us to intuitively understand business problems by assessing the different components that feed into a challenge (data, people, systems & interdependencies).

psKINETIC’s institutional onboarding framework has been designed from the principles covered in this article. Our goal was to clearly articulate how many of the most challenging problems can be tightly captured and solved within a digital solution.

Contacts us for a demo of our onboarding workflow automation solution.

Alex Tyler 
Head of Private Capital



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