Systems of Record are Required for Systems of Intelligence

Businesses need systems of record. Only when we have systems of record can we have systems of intelligence. And business leaders who develop systems of intelligence within their organizations will define the next frontier in their sector.

Let’s look at financial crime.

Systems of record at a bank or fund services firm can allow teams to learn about and then store info on a particular financial scam or scheme. When a bad actor attempts to repeat that scheme, the system of record recognizes it from its databank and can tell systems or people to shut down that bad actor.

But financial criminals know how banks and other institutions work. They are constantly changing their methods and schemes. It’s not enough for bankers or fund administrators to defend against the same types of crime. They must look for the same repeating patterns in their data. They need to defend against the crimes of the future. These crimes may look nothing like previous digital heists or fraudulent transactions.

The learning loop

This foresight requires a system of intelligence. AI tools should power it. These tools can run perpetual analyses on incoming data. They identify known dangers and flag suspicious “unknown unknowns.” These may indicate criminal activity. This kind of smart system helps bankers or other business leaders make breakthroughs. They do this based on the data that’s been collected. They provide foresight for what might come next using probabilities based on the system of record.

Systems of intelligence – a term coined by author Geoffrey Moore in 2017 – look deeper into transactional data to uncover the most well-hidden risks lurking within an organization. The feedback loop of finding new crimes then helps create new rules, keeping pace with the criminals while maintaining an expanding archive of their schemes.

More crime

It’s never been more important for financial firms to show they are serious about financial crime. The cost of financial crime compliance in the United States was predicted to hit almost $46 billion in 2022, up from more than $26 billion in 2019. Global financial crime costs banks north of $2 trillion annually.

Finance and investing firms need systems that are agile enough to confront the compliance challenges of tomorrow and take on the ever-expanding amount of work involved in financial crime and transaction monitoring. Only AI-powered solutions at this stage can deliver this level of efficiency and security.

As the Wall Street Journal’s Richard Vanderford reported, customers and regulations increasingly expect banks, funds, and others to deploy financial-crime-detecting AI systems. There’s no other way to scour billions of transactions while money launderers, human traffickers, drug dealers, and other criminals grow more sophisticated and tech-savvy daily. Vanderford cited AI proponents, saying, “AI can do the job better, require less staff, and enable continuous check-ups on customers and transactions for money-laundering issues and sanctions violations.”

From financial crime to heart attacks

To understand the power of AI-driven systems of intelligence in confronting these myriad challenges, it’s worth looking at how similar tools are revolutionizing health care – specifically preventing heart attacks.

The Semmelweis University Heart and Vascular Center in Hungary has treated thousands of patients with heart disease. They collected troves of data and images to create a patient similarity network. In short, they had a potentially powerful system of record. However unlocking the system’s potential required deploying an AI platform. The platform found patterns and delivered insights. This was achieved through a combination of topological data analysis and supervised and unsupervised learning.

The Center created a system of intelligence that is now detecting cardiovascular risk sooner, predicting patient outcomes more accurately — and saving lives.


This example shows how a system of record is only the first step in deploying data to improve outcomes. Taking the next step allows organizations to identify recurring problems. And they do it far more effectively. They start looking ahead constantly to identify risk. During a time of staff shortages and rising demands across sectors, AI crucially allows companies to increase efficiency without increasing head counts.

More than three in four financial executives see AI-enabled risk detection driving improvements in fraud prevention over the next year, according to a recent survey. More than half see it driving advancements in credit decisions and cost savings.

Firms with a system of intelligence stand to see significant reductions on two fronts. They significantly cut costs. And they avoid the potentially crushing blow of attacks or missed opportunities.


Do You Know Everyone on Your Vendor’s Team?

Making all team members directly accountable to you through modern platforms means fewer surprises.

Most marketing, public relations and sales agencies will tell you with pride that you will have a single point of contact who will own their relationship with you. You will barely see the other folks working for you.

It’s also true in other industries from fund administration in private capital to IT implementation.

The problem with this model is that your single point of contact might be the only person at the service provider who knows your business. This situation is why private capital CFOs for instance keep their fund administrators after they’ve invested significant time in a long-running relationship. It’s also why they switch fund administrators when there is too much churn at their service provider’s firm.

The same thing happens in marketing and public relations, but let’s stick with the fund services model for the moment. We’ve seen the future in that particular space.

Who’s in charge here?

Should you really need a designated advocate and single “throat to choke” to get the rest of your partner’s team to understand your needs?

Talking to leaders in the fund services industry has caused us to ask whether a “single contact” is a cover for the fact that everyone else touching your operations is a specialist who is shuffled in and out to perform work without deeply understanding how your business works.

Leading teams are built around a more robust model where you have a more complete and visible team helping you out, that sees and knows what you are trying to achieve. It’s something that’s caused us to reflect on our own business, including in the past two weeks when the two primary leaders of our outfit were off the grid.

Have we done a good job of ensuring we have a deep bench that’s well versed in our clients’ work and how to best support them?

Every person, a point person

Does your partner ensure all team members can serve you directly along with the team lead.

I don’t want to overstate that point. Different members of your partner’s team have different levels of experience and unique specialties. Going back to fund administrators, these firms often err on the side of a single point of contact where knowledge of your needs and style are consolidated.

But more sophisticated firms are now erring on the side of the full team being allowed to focus on your needs on a sustained basis. Every member of your outsourced team becomes immersed in what makes you unique in the private capital ecosystem. They develop well-rounded private equity professionals versus specialized fund administrators.

The result is that every member of the team serving you is known to you, and fluent in your firm’s culture, process, and aims.

That approach often surprises clients. It frankly feels like a truly in-house team (I know, this rhetoric is over played… but when it really happens you know it).

Here’s where tech can come in.

The Amazon approach to fund services (and professional services)

In this system, if it’s supported by the right tech, team members handle client inquiries in near real-time, through chat — coordinating the full team to eliminate fragmented responsibilities and multiple meetings and emails.

That also means being built to allow for small teams that focus on smaller sets of clients. (Amazon has shown how this approach scales with Jeff Bezos’ “Two-Pizza Teams.” We should be able to feed your team with two pizzas. That’s the right size to be cohesive, collaborative, and aligned with your team.)

This is fueled with data securely available to all team members so they have up-to-date knowledge of who has talked to the client, when they spoke, what the client’s latest questions or directions were, and how they or others can help the process. Client teams are well-informed, don’t encounter duplicative questions, and don’t wonder where outstanding work stands. Lastly, you expand the efficiency of each outsourced team member and the intelligence of their work with data operations and automation. When you’ve done this, you’ve reduced friction significantly.

This approach also means you’re able to move from peaks and valleys of activity to streaming work that is more agile than any legacy approach.

We expect others will attempt to copy this strategy, and we encourage them to do so.


Where Should Advisors Fit Into Your Business?

From talent managers to operating partners and marketers to fundraisers, leaders at private capital firms are becoming increasingly frustrated. The fundraising cycle is slowing, budgets are shrinking, and everyone’s looking at how to get to sustained profits… yesterday.

So, do you need an advisor to help you through challenges like this? It’s another expense, not an immediate contribution to the top line. If you do, what exactly do you want in an advisor?

Let’s look at employee benefits for example. We’ve done a fair amount of work in the insurance, benefits, carry and compensation space. So, we’ll take a deep dive here to illustrate some points.


Corporate employee benefits and health insurance costs are steadily rising with an apparent scant increase in value (thought let’s save that for a separate debate). Yet, balancing savings with team wellness makes for tough choices. Not only is the health insurance market confusing, fragmented, and risky, this proverbial maze is constantly changing and always full of surprises.

The common solution of switching to another prepackaged deal has its drawbacks. Transition costs can often outpace regular price hikes. Prepackaged solutions can’t always match an employer’s unique needs, either. And given the current labor market — an exceedingly tight and competitive space that places employment benefits and other perks under the microscope of potential and existing employees — retention and recruitment challenges are constant.

To better navigate this maze, private capital firms may find it advantageous to seek help from a benefits advisor who can serve as an extension of their deal, operations, and procurement teams. In fact, advisors who stand apart from the broker and are familiar with the dynamic between general partner teams and portfolio companies is especially valuable in the private capital world.

This point goes beyond benefits and talent. Independence, when it comes to advising on something that can make a decisive difference in your business can be more important than getting that thing in a package wrapped up with the service you’re trying to analyze. The same goes for having independent investor relations counsel in addition to an investment bank, not relying entirely on the investment banking team for counsel.

Let’s explore this further in the benefits context, starting with the challenges posed by the current benefits and insurance landscape.

Status quo no more

The employee health insurance market is not designed to be easy to navigate. Adding yet another layer to this fundamental challenge, the benefits maze is also constantly shifting and evolving. As soon as you have a strategy for navigating your way forward, the landscape changes.

While cost containment remains a steady concern among private equity firms, retention and recruitment issues have begun to influence health insurance and other benefits, too. These offerings are a vital part of professional employment packages.

Conducting a comprehensive review and developing a competitive benefits strategy that matches the unique needs of current and potential employees can be difficult, however, when prepackaged or “status quo” solutions are the only options on the table. Also, given the current pandemic environment and its widespread effects on the economy and labor market, it’s clear that we’re living in volatile times.

So, customization appears to be the name of the game. And that goes for much or the operations landscape, right down to marketing and the IT stack. But customization also incurs costs.

Customizing, a magic bullet

Developing a strategy that provides bespoke, yet cost-efficient plans may be the best way to contain spending while keeping team members happy.

Easier said than done.

True benefits strategy takes shape when you ask the right questions, build a framework that helps explain why things are the way they are, and then test your assumptions until a realistic — and sometimes uncomfortable — picture of a company or portfolio’s situation emerges. That’s when you can measure a company against industry benchmarks and start implementing realistic solutions, including those that include cross-portfolio oversight and collaboration.

Part of this process entails unbundling the various components of health insurance options to find the most efficient approach to piece together a bespoke plan.  Of course, this process can be extremely challenging. Navigating all possible options and their complexities requires a level of expertise that may not be available within the firm. Hence, the need to outsource benefits strategy.

Seek guidance from outsiders

Think of an independent an outside advisor as an experienced traveler navigating a changing river who knows how to test what’s happening under the water. In addition to knowing where the maps will steer you right, an advisor knows when and where the maps are out of date. Ultimately, an independent advisor can guide you through the trickiest and most rapidly changing parts of your perilous journey.

For example, would it be more advantageous to adopt a self-funded approach with stop-loss protections or would it be wiser to establish a licensed company offering a captive insurance plan? Might the adoption of a reference-based plan provide better pricing than another that’s carrier-determined? Could alternative funding vehicles help ease expenses on the high-cost claimant end? Most importantly, is the necessary data there to make the clearest assessment before a final decision?

Wanted: a great advisor

What, then, makes a good strategic advisor? Here are some things to look out for:

  1. Does your advisor ask about your goals? For example, in our benefits example are you seeking to cut excessive costs, retain employees or undergo a complete overhaul?
  1. Do they ask about your current plan’s transparency? Let’s consider prescriptions in benefits. Do you really know how much everything costs? Have you considered a transparent pharmacy benefit manager?
  1. Do they ask about your third-party administrator or outside resources? Have you reviewed your administrative services only (ASO) agreement?
  1. Have they suggested new plans? For example, have they suggested direct contracting, reference-based pricing, limited, center of excellence or captive insurance models? Do these plans reflect the needs of employees? Employees value plans customized to suit their personal needs.

Adding value

The healthcare insurance and benefits landscape may be a shifting maze whose only fixed features are rising costs and flat or declining values. That’s true of many business systems and functions currently, including marketing and public relations.

That will likely remain the case if prepackaged solutions remain front and center in the development of enterprise-level strategies. There are plenty of other options available.

Seeking the help of an experienced strategic advisor may be the best way to develop a process to expand your bottom line while adding significantly more value for your current and potential customers, investors, and employees.