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Making Good Use of the Calm After the Storm of Tax Season

Congratulations to all of you tax directors and operations teams of hedge and private equity fund managers (particularly those managing funds-of-funds) and private wealth family offices who have successfully navigated (or are about to) another tax second season!  Celebrate with your team at the annual end-of-season events and take a few days to recuperate from all the late nights as your blood pressure (and adrenaline rush and stress levels) reduce to that of mere mortals.

Before memories of tax season operations recede to a blur, some firms conduct a post-mortem to either informally reflect on – or more formally conduct an Operations Assessment to review – which processes worked well and which deserve a fresh look.

Those firms that conduct informal reviews often do so internally, based on a combination of team meetings and suggestion-box comments submitted by team members.  These reviews often focus on the symptoms but perhaps not their underlying causes, but may well sufficiently address the issues – especially if few issues are raised.

Other firms – especially those with more complex operations and processes – may elect to conduct a more formal Operations Assessment, spanning one or more of the three pillars that form the foundation of business operations: process, people and technology.  The rationale for conducting an Operations Assessment may be reactive or proactive, or a combination of the two.  Examples include:

Reactive: Pain points experienced when delivering the processes performed within operations:

  • Delays in receiving and capturing incoming data (for example, from Schedules K-1 received from investments)
  • Delays/errors in conveying and reconciling data between multiple processes and the software used to perform them
  • Delays in responding to inquiries received from a portfolio manager or trader regarding the tax impact from trades under consideration, especially when liquidity requirements are time-sensitive
  • Risk of or actually missing deadlines (e.g., for tax filings or expected timing of reporting to investors)

Proactive: Planning/updates to address/meet future goals and targets:

  • Business requirements
  • Marketing goals
  • Funding availability and limitations
  • Resource availability and competencies
  • Technical platform environments/constraints
  • Leadership goals and commitments to stakeholders

Smaller, less complex, Operations Assessments can be led internally, if a resource inside the firm has the availability to devote to the project, experience in performing assessments, and familiarity with the processes, staff assignments and technology in use by the firm. More often, an external consultant is engaged to lead the engagement, working closely with leadership to ascertain their goals and with the individuals who have roles in the processes to be assessed. From that point onward, engagements differ widely in scope, length, goals, and deliverables.

Considerations when selecting a consultant to perform an Operations Assessment

Is independence important?  The answer depends on your goals:

Independence is important if:

- You want the consultant’s deliverables and suggestions to be independent of any loyalty or preference to previous employers, specific approaches or products.

- You do not want their proposals to be guided by an assumption that they will be selected to implement/execute their recommendations (using their teams, software, etc.).

Independence is less of a consideration when selecting a consultant when:

- There is an assumption that, once the consultant’s recommendation is approved, the consultant may or will be running or involved in the execution/delivery of the proposed project (e.g., involving the consultant’s own resources, software, etc.).

- The consultant’s familiarity with your firm is viewed as a benefit – that offsets any perception of bias in their findings.

The consultant should be familiar with and able to both assess your business process needs and translate them into a roadmap for implementation and – where required – specifications for the developers/vendors to address and deliver.

What makes a good consulting engagement – both Operations Assessments and consulting engagements in general:

First and foremost, Set Expectations – for both the consultant (who should help you with this) and the people in your firm with whom the consultant will engage (so they understand why they are being asked to speak with the consultant, and proactively defuse resistance to those conversations)

Define the goals of the engagement:

- What are you seeking to learn/accomplish?

- What are the expected deliverables: A report? Presentation? A list of options? A definitive plan of action? 

- Clarity re: whether the consultant’s role is limited to delivering a set of options or plan of action – or expected (or likely) to participate in executing the plan of action.

Define the scope of the project:

- What processes/operations are to be reviewed

- Who will be interviewed (be specific re departments and names)

- Length of project: When are the final deliverables due; Will there be interim milestones

Come to agreement on cost and billing (e.g., monthly; upon achievement of milestones; something else?) 

How will potential changes/updates to project scope be formally raised and agreed by both parties.

The findings published from these Operations Assessments may be as varied as the number of firms that undertake them.  Outcomes/recommendations may include some combination of:

- Changes to various processes: adjusting them, combining some of them, splitting others; outsourcing selected processes, or perhaps bringing others in-house to be performed internally.

- In some cases, the changes described in the previous bullet may depend on the skill sets – or lack of skills – of the personnel currently charged with performing those tasks and processes – and perhaps the ease – or difficulty – with which their skills can be brought in line with the requirements to perform the tasks and operate the technology on which they are dependent.

- Updates (consolidation of software, upgrades, replacement) of current technology – with the possibility of bringing some applications in-house and/or outsourcing others.

- Recommendations may also include considering changes to the service providers utilized by your firm – or potentially asking your service providers to adjust how they deliver data to you to streamline your processes.

The number of changes recommended in the findings delivered from the Operations Assessment are not an indicator of the value or success of the project.  On one hand, you may find that your operations are in good shape and significant change is not warranted (or will not produce significant impact to your business); on the other hand – especially if such an assessment has not been conducted for a number of years – the findings may offer an opportunity to streamline your operations, make them more efficient, and/or better able to address your goals and expectations.

We hope that this abstract has provided an overview of what firms contemplating an Operations Assessment to review their just-ended tax season operations and engaging a consultant should take into consideration.


Gary A. Mills is Founder and Consultant at Gary Mills Consulting LLC


The views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group

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