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Build, Buy or Outsource: Tax Reclaims and Class Action Recovery

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This article is sponsored by Goal Group.

Written by Bill Salva and Noah Wortman

The arguments in favor of outsourcing or buying a commercial enterprise solution from a qualified Tax Reclaim and Securities Class Action Recovery provider are compelling. One common guideline applied by many for this decision is to buy or outsource when you need to automate a commodity business process, and to build only when you’re addressing a core process that differentiates your company. The reality for most financial service firms is that Tax Reclaims and Securities Class Recovery processing is rarely considered a core business process, no matter how much many of us in the recovery business like to think it is. That said, banks, brokers and other financial institutions that provide securities trust, custody and related services for clients often have an obligation to perform these services either under local fiduciary standards, regulations or customer service level agreements. The fact is that many organizations have been forced to recognize this obligation by either their regulators or their clients and have had to decide whether to build, buy or outsource.

Tax Reclaims

The business of filing tax reclaims is not rocket science. However like rockets themselves, it has many moving pieces that require constant vigilance and attention to detail. The technology platforms that support tax reclaims need to have the functionality to account for and manage changes over time in many details such as investor tax status, income types, tax rates, filing regulations, reclaim forms, tax treaties, and other requirements imposed by various actors in the value chain.

The main problem with tax reclaim systems built in-house is that they require constant business-rule updates and upgrades to accommodate new markets, regulations, and other modifications. Keeping these systems up to date requires a commitment to sufficient resources, including expert staff and/or access to professional advisory services that many organizations overlook or under estimate. As with other in-house built solutions, the classic issues also often arise including; such systems usually cost more to develop than to buy when all costs are factored in; requirements, design and development expertise are often hard to find and keep; and internal competition for limited resources constantly threatens an in-house system’s viability.

Buy an Off-the-Shelf Solution

A tax reclaim solution from a qualified provider offers a myriad of benefits. Since a truly qualified and experienced provider will have been in this business for decades and provides its solution to many firms, the solution will likely have all the needed functionality built-in. An off-the shelf solution can also be deployed much more quickly and at a lower cost. The best providers also include business-rule maintenance that provides timely upgrades and updates. It just doesn’t make sense to “reinvent the wheel” when it comes to the right choice for a tax reclaim solution.

Outsourcing

For many firms an outsourcing model makes even more sense. As noted above, it’s clear that an off-the-shelf solution is preferable to building one in-house. However, it still requires firms to hire, train, and keep qualified staff to manage and perform all operational activities. These are not insignificant challenges for many firms due to budget constraints and shortages of qualified staff. On the other hand, outsourcing enables a firm to provide clients a world-class tax reclaim service in the shortest amount of time, at the lowest possible start-up cost and without having to staff up and support another operations team.

Securities Class Actions Recovery

When a securities class action settlement is announced, the terms under which a class member can claim a loss and seek recovery under a settlement agreement can vary substantially from case-to-case. In general, the purchases, sales and certain other trading activity in publicly traded securities of potential class members need to be evaluated to determine whether they qualify to lodge a claim, and each court approved settlement administrator has its own defined terms, manner and timing required to lodge valid claims. Moreover, the U.S. is no longer the only country for which there may be an option to pursue recovery, and each global jurisdiction brings its own set of rules and procedures to participate in class actions. This analysis is complicated and not for the faint of heart and should probably be left to the experts.

Here, the choice is whether a firm should do it themselves or outsource. An in-house solution primarily requires the development of internal expertise in the mechanics of class actions litigations and nowadays, even more so, given its ever growing global phenomenon. As with tax reclaims, qualified class actions staff are difficult to find and retain, and it is often difficult to justify dedicated staff and technology resources to securities class action activities. Like tax reclaim outsourcing discussed above, outsourcing securities class action monitoring and recoveries to a qualified, experienced provider is arguably the best way for a firm to offer securities class action recovery services to clients at the lowest possible cost.


About Goal Group
Goal Group is the world’s leading class actions and tax reclamation services specialist. With headquarters in London and offices in Philadelphia, San Francisco, Melbourne and Hong Kong, Goal Group monitors client assets with a total value in excess of £8 trillion. It has a truly blue-chip client base including many of the world’s largest global custodians, asset managers, private banks, pension funds, local government authorities, hedge funds, investment banks, prime brokers, and fund managers spread widely across the Americas, EMEA and Asia Pacific.

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The Slings and Arrows of Passive Fortune

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This article is sponsored by S&P DJI.

If a tale were to be written regaling us with the popular exploits of the modern day active manager in his quest for alpha across the many peaks and valleys of the financial world, passive investment would likely feature prominently in the telling. Passively managed assets have grown tremendously since their introduction in the 1970s to command some 20% of the U.S. stock’s market total-float adjusted capitalization, drawing a deluge of criticism in recent years from proponents of a more traditional, active approach who charge indexers with all manner of supposed ills – from encouraging collusive behavior and exacerbating pricing inefficiencies, to indifference on matters of corporate governance.

But are passive assets and their purveyors really the threat to markets that active management makes them out to be? Or are the problems attributed to their rise merely a reflection of the market forces all participants must face? These are the questions posed by Anu Ganti and Craig Lazzara at S&P Dow Jones Indices (S&P DJI) in their new paper, titled “The Slings and Arrows of Passive Fortune,” which seeks to unravel some of the most pervasive myths surrounding the growing role of index funds, highlight the immense value they bring to asset owners, and posits a future of asymmetric equilibrium between the old and the new that puts each in their proper place based on relative – rather than absolute – performance.

Nobody – including the paper’s authors – denies that index-based investment has made life more challenging for active managers, who count alpha as their very lifeblood; but so too would it be foolish to argue its advancement as one of the most important developments in modern financial history is without merit, or somehow Thucydidean in nature. If anything, active management can and should expect its portion of the pie (which, it must be pointed out, constitutes the majority of assets by a wide margin) to remain subject to nibbles from their passive counterparts – nibbles that may, with time, diminish. The market always has room for more players at the table, after all, and we all play by its rules.

As Director and Managing Director of index investment strategy team at S&P DJI, Ganti and Lazzara provide research and commentary on the firm’s entire product set – covering U.S. and global equities, commodities, fixed income, and economic indices. Both are chartered financial analysts and regular contributors to Indexology, S&P DJI’s appropriately named blog covering developments in the world of indexing.

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Battea: 2017 Securities Class Action Industry Lookback and Observations

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This article is sponsored by Battea.

Source: Battea

There has been incredible growth in securities and antitrust class action litigations and settlements, particularly as they have unfolded in 2016 and 2017. The number of new cases and settlements from traditional securities litigation to antitrust rate rigging, spread inflation and other forms of collusion are at an all time high and shows no signs of slowing down.

With several multi-billion dollar litigations related to Libor, Euribor and Tibor rates, and spread manipulations, the securities, foreign exchange and antitrust class and collective actions litigation space rose exponentially in 2017.

View Whitepaper Here

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The Future of Operations: Simplify, Innovate and Transform

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This article is sponsored by Broadridge.

Now that the pain of the global financial crisis and subsequent regulations are starting to fade from view, the asset management industry is facing new challenges that will transform the business. Firms must be nimble enough to support this evolution. That means not only redesigning operations, but also adopting new technologies that can be used for innovation in-house and with the help of partners.

In active management, the industry has created more complex products to generate alpha, while the growth of passive management, spurred by fintech competition, is compressing fees. At the same time, expansion into new markets has added costs. Facing these challenges will require serious improvements to back- and middle-office operations — an overhaul of everything from data validation to trade reconciliation.

For this type of transformation, experts say, it’s not enough to improve the steps in a process. Financial institutions need to eliminate steps. Specifically, executive members of the Asset Management Group of the Securities Industry and Financial Markets Association (SIFMA) say that leading firms should:

Work collaboratively. Firms should collaborate to solve common problems; use associations to identify and promote best practices; and partner with service providers, utilities and regulators to tap their specialized skills and mutualize non-differentiating functions.

Tackle common pain points. Many of the industry’s biggest challenges come from a lack of standardized processes: Standardizing data is the top challenge and sets a foundation to accelerate change.

Leverage transformational technology. Cloud computing, artificial intelligence, and distributed ledger technology can be transformational over the coming three, five or 10 years — but investing now is vital.

Assess, accept and mitigate risks. During times of large transformational change, it should be understood that risks are higher. This traditionally risk-adverse industry must balance the need for bold change against the fear of producing subpar outcomes.

This paper asks how asset managers can move beyond incremental improvements, like shaving costs from processes like post-trade settlement, regulatory compliance and reconciliation, to reimagining how operations are handled. Based on discussions with executives from leading asset management, buy-side, and sell-side firms, as well as service providers, it assesses the drivers for change and the challenges and opportunities ahead, and discusses what actions the industry must take to reach its desired future state.

The long-term vision of how asset management operations should change is best summed up by one word: Simplify.

To learn more about “The Future of Operations” for the asset management industry, download the white paper from Broadridge and the SIFMA Asset Management Group.

To learn more about Broadridge’s solutions for the asset management industry, please visit www.broadridge.com/financial-services/asset-management/

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