OCTOPUS INVESTMENTS GRABS OPPORTUNITY TO IMPROVE RECONCILIATION AND EXCEPTION MANAGEMENT

Executive Summary

Octopus Investments (‘Octopus’) offers financial products which aim to solve problems faced by real people.  Octopus has deployed GroupIT from Aurum Solutions to manage highly complex two- and three-way reconciliations for cash, client money and stocks.  The solution is also used for data cleansing and forecasting. GroupIT has delivered time savings, cost reductions, and improved management and control over risk.

Background

Founded in 2000, Octopus is a fast-growing UK fund management business with leading positions in several specialist sectors including healthcare, energy and smaller company investing. It was just one of fourteen investment providers to be awarded a five star rating in the Financial Adviser Service Awards in 2014. The company has achieved significant growth since it was founded and is set for further expansion over the coming years. Despite over £5bn assets under management, 50,000 investors and 450 employees, Octopus remains a UK-focused company with a local presence.

The company prides itself on innovation, expertise and delivering exceptional customer service.  The fund manager historically relied on manual reconciliation processes for the company’s client money and client assets as well as fund of funds (FOFs) cash and stock positions.  However, this caused a number of challenges to the team of six who were responsible for reconciliations.  Keith Clarke, Reconciliations Analyst at Octopus, describes the impact:

“Client funds have to be correctly accounted for on a daily basis, which makes reconciling transactions between our portfolio system, our bank and our broker a vital financial activity.  We previously used spreadsheets to match data from multiple sources which was often received in different formats such as csv files, printed statements or other paper based records.  Each of our investment products and FOFs have to be reconciled separately, with the FOFs in up to three currencies.  Identifying exceptions was similarly time-consuming.  However the daily reconciliation had to take priority over any other activity regardless of how much it might demand of my time every day.”

Selecting a flexible reconciliation system

Octopus evaluated a number of reconciliation systems, as Keith continues:  “We talked to large software companies as well as some smaller suppliers, including Aurum Solutions.  One of the advantages of GroupIT is that the advanced reconciliation functionality was a fraction of the cost of other high-end systems.  We also saw that the inherent flexibility meant that it could be tailored to our specific requirements.

“The implementation was even smoother than we envisaged,” Keith admits, adding, “Aurum helped us to visualise how GroupIT could work specifically for us.  They understood from the outset what we wanted to achieve for our cash and stock reconciliations and then delivered a working solution.  Our reconciliation requirements are complex but thankfully we didn’t have to change how we worked to fit GroupIT.  To their credit, we found that Aurum pride themselves on catering to the operational requirements of customers and this proved an invaluable quality.”

Complex daily reconciliations

On a daily basis, Octopus uses GroupIT to reconcile up to 10,000 or more cash transactions related to client money, matching customer information such as cash advances or stock balances from its portfolio system Exact with bank statements from HSBC.  GroupIT produces an exception report which is used to resolve any unmatched items.

Octopus also performs cash reconciliations against its broker State Street.  GroupIT matches its cash transactions against Exact and then custody cash transactions are matched to Exact.  Items in Exact will only be reconciled once it has been matched to both State Street sources thus providing more robust cash positions for the fund manager.

This new system has helped Keith to manage a complex process more effectively and efficiently. “GroupIT allowed us to move from a manual, two-way cash reconciliation with our broker to an automated three-way reconciliation which allows our fund managers to know precisely how much cash they have available for trading.  We could never have done this before due to restraints on time and resourcing, and the complexity involved.”

Octopus uses GroupIT as a front-office accounting tool to assist with forecasting to check that future trades have taken place.  For example, GroupIT accrues management fees on a daily basis so the fund manager knows what the management fee payment will be over a defined period of time.

A flexible cost-effective system

Octopus has benefited from using GroupIT in several ways, a point Keith is keen to expand on:

“We are achieving significant benefits from the deployment of a customisable system such as GroupIT rather than an off-the-shelf reconciliation product.  This is testament to the Aurum philosophy of tailoring the software to how a customer runs its business.  Whenever we have requested modifications to how we want to use GroupIT as our business evolves, Aurum has always risen to the challenge.

“We know that our reconciliation requirements are very complex.  However, GroupIT enables us to manage and control this vital financial activity more effectively.  Our fund managers continually look to us for more varied information and reporting requirements and we have to adapt if we want to maintain our reputation for service excellence.  GroupIT’s flexibility and Aurum’s can-do attitude are important in this respect.”

Risk and reporting

Keith turns to the problematic area of risk: “Management of risk is another area where GroupIT has made a positive impact. For example, we use a number of reports that enable easy identification of critical outstanding items.  Additionally, we use a daily client money report (CMR) which calculates on an aggregate basis the total client money held by Octopus across all products.  This is used by different departments, including Compliance, and ensures that Octopus is meeting its capital adequacy requirements.  Replacing manually produced reports means we are able to mitigate risk by identifying exceptions and resolving queries faster.

“GroupIT’s reporting capabilities are widely used for meeting our audit requirements. Reports such as the summary reports showing us our cash advance position and breaks form the basis of the information that we supply to our auditors.

Peter Orsi, Head of Operations at Octopus said: “We have seen a quick return on our investment with GroupIT.  A major benefit is the time saved.  Even though we have increased the number of bank accounts and transactions that we process, we can complete all the daily reconciliations before 12pm most days.  Without GroupIT this process would easily take at least one person an entire day to complete.”

Impressive service standards

Keith has been impressed with Aurum as a supplier too:

“The service that we receive from Aurum is unique in my experience. They are very hands-on and employ a collaborative approach that has been very successful.  One of the core values at Octopus is to be ‘better and better’ and Aurum certainly share this philosophy.  They have a friendly, knowledgeable team that genuinely understands the financial services industry and always helps us to respond to business change which in turn helps us to continually improve our back-office processes.

“I would happily recommend GroupIT to other companies as a flexible, cost effective reconciliation system that can be tailored to individual requirements that is supported by a dynamic vendor with a commitment to customer service.”