AllianceBernstein Tames the Onboarding Beast

It’s funny how a seemingly simple task, looked upon in its singularity, can become a nightmare when multiplied. Take, for example, the relatively mundane process of onboarding a new client. Asset manager AllianceBernstein has more than 1,000 accounts, each of which is spread across anywhere from a handful to more than 20 broker-dealers. Every new account was brought on in a manually intensive way that relied heavily on the use of email, says Gerardo Talamo, vice president and counsel for derivatives legal at AllianceBernstein.

“When doing this, literally, every second counts,” he says. “We’ve got hundreds of accounts and every one we’re dealing with—depending on the account—has up to 15 dealers. So any delay in getting those accounts to dealers is magnified by those numbers: 15 times for each dealer and then by every single account. What may seem insignificant for just one particular onboarding, when you view it in the aggregate, it actually adds up to serious time and hours.”

Regulatory Requirements
Originally, AllianceBernstein would get a request to onboard a new account. In order to meet certain regulatory and contractual requirements, the dealers require at least five documents for their credit and know your client (KYC) reviews: the investment management agreement form; a tax form; a document that proves the formation of the fund; a certificate of limited partnership; and a document detailing the investment strategy, according to Talamo.

The account is sent to several dealers, depending on the urgency of the request. AllianceBernstein has to take those five documents and send them via email to each of the dealers it is using. Sometimes a dealer would come back and say it needed another document.

For 10 dealers, that’s a total of 50 files sent in 10 different emails, and then there are the follow-up emails for extra information or for status updates. That’s spread out across 1,000 accounts. And this is in a perfect scenario where all that information is readily available.

Suddenly, the simple task of sending out five documents to one dealer has been compounded into an unwieldy migraine. Additionally, those five forms are not always filled out a month before the fund launches, Talamo says. For example, the investment management agreement for the funds that AllianceBernstein creates sometimes won’t get done until the day before launch; the same is true of the limited partnership agreements. So the fact that not all the documents are available on day one means even more emails.

Figuring out a way to move away from email for something like documentation isn’t the sexiest technology issue facing the industry today, but it is a major pain point for large asset managers­—and with $125 billion under management, AllianceBernstein certainly qualifies.

Repackaged
Market data, valuations and trade processing provider Markit stumbled into the documentation market, which started through its transaction-processing business. In the early days, that consisted of asset managers sending the vendor, via fax, information pertaining to derivatives contracts that they had entered into. Markit would take that fax, scan it, load it onto a relatively rudimentary website, and then the dealer in the transaction would log in and verify the information. If the information was accurate, the dealer would sign it off and the contract would be sent for settlement.

Markit director Lansing Gatrell says that after a while, the vendor’s asset management clients asked whether,  since they were already sending over all these faxes, they could send all the information and have Markit house it and help reduce the phone calls, emails and faxes.

“So we built what was no more elegant than an online folder where a few large asset managers could dump documents,” he says. “They weren’t categorized, necessarily—it was just a big vault of documents, and they would permission dealers to use it and pull down documents. This was ancillary to our trade-processing business.”

In late 2007 and early 2008, Markit recognized that this online folder could be spun off into a separate product not just for derivatives trading. The vendor collaborated with several large dealers, which funded the project, and designed a more robust online experience. The result: Markit Document Exchange (MDE).

At first, Markit encountered some challenges in selling MDE’s benefits. The solution is not for everyone—small asset managers, for example, with 20 accounts and three brokers can handle this workload with a single attorney. MDE is only for firms with accounts that number in the high hundreds and thousands. Additionally, since brokers foot most of the bill, they aren't likely to do it for a small client.

But MDE proved to be a perfect solution for AllianceBernstein.

Nonpareil
James Wallin, senior vice president of fixed income at AllianceBernstein, compares MDE to 1960s telephone giant, Bell Laboratories, which cornered the market on phones. “We went to Markit because it provided an obvious solution to the dilemma of having to share client documents with counterparties that you know already have contact with those same clients through other channels. The description of the service filled an obvious need, so it wasn’t a big sell once we understood what it did.”

Aite Group analyst Virginie O’Shea, who has conducted research on MDE and the challenges around documentation, says Markit currently does not have a direct competitor. While there are plenty of solutions for client data management, there isn’t a document storage product like Markit’s. “It’s unique in the market in the way it deals with this kind of documentation,” she says.

As Markit’s Gatrell puts it: “We’re competing with email.”

To get all of AllianceBernstein’s existing documents onto MDE, an online portal, the asset manager hired two people who took six months to get about 70 percent of the documents uploaded.

While the initial lift is substantial, so are the benefits.

Talamo says that, for example, he recently received a request for documents on about 40 accounts from Goldman Sachs. AllianceBernstein was able to provide the information so quickly that Goldman asked for additional accounts. It took AllianceBernstein only a couple of days to accomplish the task, whereas in the past, it would have taken weeks or months.

Furthermore, as AllianceBernstein has reduced its number of staff, it has been able to handle the continued workload despite fewer resources. While the firm didn’t turn to the Markit Document Exchange for this reason, it has proven to be a valuable side effect.

Because Markit Document Exchange is web-based, the work can be spread out to the firm’s UK and Asia-Pacific teams, thus lessening the burden on the US staff.

Customized—Sort Of
While MDE is not something that is customized according to individual needs, there have been several areas where feedback from end-users has helped to improve the solution. For example, AllianceBernstein asked for functionality to provide assets under management (AUM) information dissemination. Every month, due to various International Swaps and Derivatives Association (ISDA) agreements, asset managers are required to disclose AUM information because if the AUM number moves by a certain amount, so too do collateral requirements.

Markit has a permissioning tool so that when the manager uploads documents they “permission” those accounts to dealers. With this new add-on, when the manager uploads AUM data to MDE, the permissioning tool can construct individual accounts for each dealer. So all the asset manager has to do is send the AUM data to Markit once a month.

AllianceBernstein will look to use this new functionality to provide due diligence for its monthly financial statements. To make the product compatible with its needs, the firm will now provide monthly, quarterly, and annual performance figures, an end-of-year flat figure, and the net-asset value (NAV) on a monthly basis.

“Markit has built out the technology for it; it’s up to us now to provide the data,” Talamo says. “As a basic framework, we have Markit as a place that we can post our AUMs to, instead of having to send it to each and every one of our dealers.”

He adds that MDE has also been effective for monitoring confidentiality agreements, which makes it safer and more secure than using email.

“Confidentiality of agreements is something we’re sensitive to and Markit has a good process for that,” he says. “An email can be forwarded anywhere. By putting it on Markit, it goes onto the site and the documents are housed in one place. Some clients worry about it being put out into the world, but you’re not really putting it out there—you’re putting it in a secure location and stopping yourself from sending emails that can be forwarded on to the Street.”

The Future
Markit will look to roll out MDE to its other customers in the near future, according to Gatrell. The platform currently has a user base of more than 23,000 legal entities, 160 buy-side subscribers, and more than 60 dealers. Markit also has three projects in the works that it hopes will help it to grow its subscriber list.

First, the vendor is looking to extend its partnership with post-trade processing solutions provider Omgeo. Last year, the two teamed up to provide a new financial industry standard for account documentation  by linking MDE to Omgeo’s Alert platform, a web-based global database for standing settlement and account instructions.

“What we are looking to do is connect with Omgeo Central Trade Matching (CTM) or Oasis so that when messages go through it—for example, if AllianceBernstein does a trade with Goldman Sachs—we know if they have a relationship or not. We can then take the documents for AllianceBernstein and push them to Goldman and say: ‘This client has just done a trade with you. Have you opened the account?’ Then we can push that onto the onboarding team, rather than have them wait one or two days for the operations team to call and ask if they’ve heard of the account,” says Gatrell. “Then you’re under the gun and you have to settle [the trade] in the next day or two and you’re scrambling to open that account, whereas, if you get it in real time you can open the account as you’re doing the regular processing.”

Gatrell says the vendor has yet to build the connectivity for it. “We’re looking to integrate that with our loan settlement platform,” he says.

Markit is also looking to build a Foreign Account Tax Compliance Act (Fatca) certifications program for buy-side firms, and possibly small and midsized banks. Markit is partnering with Compliance Technologies International (CTI) to build the service.

Finally, Markit is working with ISDA to build an online modification tool for ISDA master agreements. As part of the Dodd–Frank Act, there are certain business conduct rules required for dealer and swap participants to adhere to. ISDA plans to release a protocol whereby if a firm adheres to it, it will comply with the Dodd–Frank.

Markit is building an online questionnaire that will help firms identify which type of customer they are and which ISDA schedule from the master agreement they need to sign to be compliant. All participants must be in compliance with the regulation by October 15, 2012.

As things stand, Markit is currently in a league of its own. But Aite’s O’Shea says that it’s possible that a vendor like Bloomberg might make a move into this space, especially after its recent acquisition of data management provider PolarLake. “I wouldn’t be surprised if someone like Bloomberg looked at it, given some of the moves that they’ve made recently,” she says. “There are others that could look at this area as well. Markit has got the full share of the market and they’re doing a great job with it, but there’s room for growth because there’s a gap in this area and more than one player can exist in this area.”