Not All Reconciliation Reports Are Created Equal

Let’s be honest: reconciliations are painful. The three best words to describe traditional reconciliation are bulky, time-consuming and never-ending.

Report layout is an excellent example. Most reconciliation reports have so much detail that it’s difficult to know what you should be looking for. This approach is inefficient and costs your firm more than just wasted paper. Poor report design can translate into hours lost combing through the output – and that’s just to identify priority items to research! 

Many firms have accepted cumbersome reconciliation reports as an unfortunate but unavoidable evil. They waste valuable time comparing different version of Excel-driven output. They pour over printouts and transfer checkmarks by hand from sheet to sheet to keep track of previously explained variances. No one likes it. What’s worse, the back office comes to a virtual stand-still during reconciliation.  Who has the time to reach out to clients when there are discrepancies to chase?

The good news is that there is a better way.

Reconciliation reports should be intuitive and actionable.

Account reconciliation is at the core of what Accusource is known for. Based on our experience with hundreds of different firms, one thing is certain when it comes to reconciliations: bigger is not better.  More information on the report does not always translate to greater clarity. The best reconciliation reports strike the right balance by providing sufficient detail without overwhelming the reviewer.

The goal of any reconciliation should be strategic management by exception. The only way to accomplish that is through actionable design and layout of your reports. You need a structure that helps you focus on changes and identify new items. If your attention is not naturally drawn to variances that require immediate intervention, there’s room for improvement.

Accusource uses reports that have been proven effective to accomplish this goal. Our report layouts rely on different colors and font sizes to highlight critical data and also build in ample space for explanations and descriptions to minimize the work on known or existing outages.

Reconcile things in the right order.

Reconciliation timeframes are notoriously short, so triage is the name of the game. Too many firms sabotage the efficiency of the process by picking up cash reconciliations first. Because custodian data can change over the course of several days, it’s important to reconcile outages in the correct order. The better approach is to reconcile security positions first and cash second. Market values and cost basis can then be reconciled after cash.  (See The Truth About Cost Basis Reporting for more straight talk on reconciling cost basis.)

Also, remember that pending trades are typically non-actionable. A well-structured reconciliation report should group pending trades together, making them a priority only if issues remain after settlement. Building the report this way allows pending items to be marked and set aside for future follow-up.

Be strategic about the order of fixing variances.

Teams can make the reconciliation process more efficient if they always begin at the highest level possible. A bird’s-eye-view approach will help group similar exceptions together and identify root causes of variances: corporate actions, missing or incorrect dividends, or trade amount differences on a specific security. Resist the temptation to go after the first variance you see! Focus on the big picture instead, so that you can clean up multiple issues in a single shot.

For example, company ABC had a corporate action that resulted in the spin-off of a new company called XYZ. As you begin to reconcile your accounts, you notice that the custodian has processed this reorganization as non-taxable when in fact it should be taxable. If you simply match the custodian on the lots at the time of processing, an eventual correction will force you to re-post all positions because both cost basis and cash will need to be adjusted. By catching the error and correcting it proactively and consistently, you can save your team a considerable amount of re-work, especially if company ABC was held across multiple accounts.

Not all reconciliations are created equal

Reconciliation is a critical function of running a practice. Unfortunately, it is often undervalued and treated as an afterthought. It can be difficult to justify investing time and resources into a process that is not obviously broken. As a result, firms are often reluctant to make a change, even when their existing process is bulky and frustrating.

How can you convince your team that your reconciliation process needs a fresh look? In our experience, what drives the need for change isn’t simply a desire to maximize efficiency. A strategic and controlled reconciliation process can help eliminate fire-drills, reduce mistakes and strengthen client relationships. This is not just about ROI. Your ability to scale your practice and deliver more value is on the line!

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