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The
Investment Counsel Association of America (ICAA) and Cutter
Associates, Inc. (Cutter) conducted a survey of 100 ICAA
member firms on technology and operations issues. Four primary
areas were included in the survey: (1) IT and operations
spending; (2) top technology issues; (3) top operational
issues; and (4) trading and best execution.
ICAA Executive Director David Tittsworth noted that
the survey revealed that for "smaller firms, software
upgrades were the highest technology priority in 2004, while
trading systems were ranked close to the bottom. By comparison,
trading technology was the highest priority in 2004 for
larger firms, while software upgrades were viewed as less
important."
Increase in Projected 2004 IT and Operations Spending
Fifty-two percent of all respondents indicated that 2004
IT spending would increase from the 2003 level; 35% said
2004 IT spending would stay the same as 2003; and only 13%
of all respondents indicated that 2004 IT spending would
decrease from 2003.
A nearly equal number of respondents indicated that
2004 operations spending would increase from 2003 (45%)
or would remain the same as 2003 (46%). Less than 10% of
respondents indicated that 2004 operations spending would
be lower than 2003.
2004: Focus of IT Spending
The survey results indicate that the larger the firm's
AUM, the greater the likelihood that the focus of IT spending
during 2004 will be upgrading existing systems or purchasing
a new system rather than maintaining the firm's existing
IT system.
The survey also asked respondents to choose one of the
following answers relative to 2004 IT spending priorities:
(1) infrastructure; (2) applications; and (3) broker connectivity.
Respondents were nearly equally divided between infrastructure
(41%) and applications (40%) as the primary focus of IT
spending. Broker connectivity was the lowest priority -
less than 8% of all respondents selected this category.
Top Operational Issues
The fact that compliance is near the top of the list clearly
reflects both the dramatic increase (and increased complexity)
of regulations affecting investment advisory firms as well
as the enhanced time, effort, and costs related to legal,
regulatory, and compliance requirements. Given the probability
of continued action by policy makers in this area, we expect
that compliance will continue to be a high priority for
investment management firms.
Trading and Best Execution
The survey indicates a significant difference between smaller
and larger firms with respect to trading automation. Phone
and fax are the primary methods of communicating trade information
to banks and brokers for smaller firms, whereas, as expected,
larger firms tend to use electronic communications.
The vast majority of respondents (92%) indicated that
their firm has processes and practices in place for best
execution. Similarly, 90% of all respondents indicated that
their firm has a system to track and manage employee trading.
Surprises
A major surprise was the low ranking of portfolio management
and risk systems, especially amongst smaller firms. Arguably,
investment management firms should be focusing on technologies
that will enable them to enhance portfolio management functions
and activities.
The low priority given data management is somewhat perplexing,
given the fact that most large firms have made significant
investments in data management and other surveys on technology
and operational priorities rank data management high. We
continue to believe that data management represents an important
foundation for investment management businesses that has
a considerable influence on the investment process, STP,
operational efficiency and risk reduction.
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