The “cheap, fast, good” triangle, also known as the “Project Management Triangle,” typically involves trade-offs between three key factors: time, cost, and quality. However, in the context of investment data from brokerage accounts and/or information from PE related investments, we can adapt this triangle to Accuracy, Price, and Aggregation. Here’s how we understand it:
- Accuracy: This refers to the reliability and correctness of the investment data. Accurate data is crucial for making informed investment decisions, evaluating cash needs, and tracking tax-related transactions, as any inaccuracies could lead to wrong conclusions and potential losses or gains.
- Price: This represents the cost associated with obtaining the investment data. Lower prices are desirable, especially for firms with limited budgets. However, it’s essential to balance cost with the quality and accuracy of the data or even the accessibility of specific data or the time to resolve data entry and adjustments to be “complete”.
- Aggregation: This refers to the ability to gather and consolidate investment data from multiple sources or accounts. Comprehensive aggregation allows you to see a holistic view of their portfolio and make better-informed decisions based on the details that are delivered and normalized appropriately based on the various data sources across the investment spectrum.
Now, let’s apply these concepts to the “cheap, fast, good” triangle:
- Good (Accuracy): The data must still be accurate and reliable. Sacrificing accuracy for the sake of cost or speed could lead to poor investment decisions and potential losses. Therefore, it’s crucial to prioritize accuracy while balancing price and aggregation speed.
Portfolio Accounting Solutions are primarily updated with the latest and most accurate data available from the bank/brokerage/custodian data feed and updated information specific to private investments. Most solutions provide insight into the current positions and market value of the assets that reside at these institutions.
- Cheap (Price): Investors want to obtain investment data at a low cost or free to maximize their returns. This could involve using free or low-cost data sources, such as public financial databases or brokerage account reports.
So, statements are usually free to access, are provided monthly from the bank/brokerage/custodian, and accountants can usually get this information for free by accessing these statements as a 3rd party representative to the account holder. This by far is the most common approach selected today within accounting firms. So yes, access to the statement is free. Then someone must intercede to take this information and appropriately derive the information from the statement into the general ledger.
So here lies the conundrum. Accountants are not free, they are getting paid to do this, but this then impacts capacity for individuals.
- Fast (Aggregation): Investors also value the speed at which they can access and aggregate their investment data. Aggregation can enable real-time monitoring of portfolio performance and quick decision-making. Many firms today embrace a portfolio accounting platform.
This type of solution aggregates the investment data, usually daily, and represents the current investment holdings and cash for each account based on the previous business day. As this is important for a firm that is managing the day-to-day investments so they can react when needed, accounting teams usually need the summary data for each account to be represented in the “general ledger” monthly to summarize transactions like buys, sells, interest received, dividends received, deposits and withdrawals. Short/Long term Unrealized and Realized Gain/Loss, and Market Value also may be required as valuation parameters that need to flow into a general ledger.
Now there are some additional details that come into play that are not potentially identified in any manner from the brokerage data that is delivered to these portfolio accounting solutions and that is bond amortization/accretion.
- Accuracy (Data Quality):
- Accuracy is paramount when entering brokerage statement information into general ledger software, as any errors could lead to incorrect financial reporting and decision-making.
- Verify the data entry process to ensure that all transactions, including trades, dividends, interest, and fees, are accurately recorded in the general ledger.
- Implement validation checks and reconciliation procedures to identify and correct discrepancies between brokerage statements and ledger entries.
- Utilize software features such as data validation rules, audit trails, and exception alerts to flag potential inaccuracies for review.
- Regularly audit and reconcile the general ledger against brokerage statements to maintain data accuracy over time.
- Invest in training for personnel responsible for data entry and reconciliation to minimize human errors and improve accuracy.
- Price (Cost Efficiency):
- When considering price in the context of entering brokerage statement information into general ledger software, the goal is to minimize costs without compromising the quality of the data.
- Look for cost-effective solutions for data entry, such as software that offers competitive pricing. However, ensure that these options still meet your accuracy and aggregation needs.
- Consider the total cost of ownership, including subscription fees, setup costs, and any additional charges for data integration or support services.
- Evaluate the scalability of the software. While a solution might be inexpensive for a small portfolio, it could become costly as your investment activities grow.
- Aggregation (Data Integration):
- Aggregation is crucial for consolidating data from multiple brokerage accounts or sources into a single platform for analysis and reporting.
- Choose general ledger software that supports seamless integration with brokerage accounts, allowing for automatic import of statement data. This reduces manual entry errors and saves time.
- Prioritize software that can aggregate data from various formats and sources, including PDFs, CSV files, and APIs. This flexibility ensures compatibility with different brokerage platforms.
- Look for features such as data reconciliation and automatic categorization to streamline the aggregation process further.
- Consider the frequency of data updates. Real-time or daily aggregation is preferable for timely decision-making, especially in volatile markets.
By focusing on Accuracy, Price, and Aggregation in the context of entering brokerage information into a general ledger software, you can optimize cost efficiency, streamline data integration, and ensure the reliability of financial reporting for informed decision-making with KnowLedger.
My 2 cents,
It is not Cheap or fast to have people key rec data, and these accountants could be doing other things.
It is not Fast to have people hand key journal entries and opens to potential issue of incorrect data entry, which will impact data entry and is not good. If you have other people auditing the entered data, then this adds to costs.
Good data is relative. It is better to be close between a month end and a couple days after month end to have balanced and insightful data to make more informed decisions based on the information at hand.
Portfolio Accounting solutions are updated daily to reflect the current position and cash information from the previous day of market business: Market Values, Cost Basis, Unreal and Real Gain/Loss, Amortization, Accrued Interest. Just use this as the base for evaluation and reporting in a General Ledger as the investment team does.
If you do not have access to this information from a portfolio accounting solution, then you are going to need to streamline statement process and automate the collection of this data at scale to be entered into the General Ledger.
It’s cheap to do nothing about changing your business process, but I know it is not fast or good.