Data Feeds - The Facts That Matter

Part 1 of 3: Back to Basics

There has been a fair bit of commentary across the SMSF industry on data feeds of late – particularly around what the term ‘reliable’ means in relation to data feeds, how data feeds differ (or are they all the same?), and where ASAE 3402 and share registry data fit into the whole picture.

We’ve put together a three part blog series exploring data feeds. In this article, Part 1 of our Data Feed Series, we go back to the basics on data feeds.

Back to basics - why data feeds are important

Data feeds allow automation of data entry, saving time and greatly improving productivity. They drive automated processing and reconciliation of transactions, delivering significant efficiency improvements. Daily data feeds are also essential if accountants are to efficiently meet the real-time reporting requirements (TBAR) which are coming into effect. Quite simply, they’re the lifeblood of efficient SMSF processing.

Are all data feeds the same?

No, they’re definitely not. There are two common types of data feeds - direct-connect and email-based solutions – which differ greatly. Here’s a quick overview of where those differences lie:

Direct-connect data feeds (pioneered by Class in the SMSF market) come directly from the financial institution into the SMSF software on a daily basis, via a secure, authenticated and end-to end encrypted link. They provide highly reliable, encrypted data over a point-to-point connection – which means they can’t be intercepted, meddled with, lost or diverted. Also, the availability of daily data feeds provides significant advantages to administrators (more on that later).
Email-based solutions are a less reliable alternative to direct-connect data feeds. Rather than a direct connection feed, the financial institution (typically a broker or fund manager) used by an account holder sends an email with data and/or PDF attachments to a third-party intermediary that is a data feed provider. The third-party data feed provider uses software to ‘scrape’ the data from the email and PDFs. This means the overall process is less safe than direct-connect data feeds (some are password protected, but they’re not end-to-end encrypted), not necessarily free from transcription errors, delivery is not guaranteed (emails may be lost), or they could be redirected, altered or resent without detection.

Most software providers now have direct-connect data feeds from banks and financial institutions for bank transaction data, however this still isn’t the case for broker feeds – Class remains the only SMSF software provider to exclusively offer direct-connect data feeds for cash, brokers and platforms. As accountants and administrators don’t have to ask their clients to send copies of their bank statements to a third-party provider for data scraping, we don't think that contract notes and broker transactions should be treated differently. At Class we have been a leader in the market by substantially investing in direct-connect data feeds. We decided to make that investment because we recognise that they are an integral part of the service and value we deliver to our customers.

It is also worth pointing out what is NOT a data feed. Manual file imports from financial institutions are not data feeds. They require manual intervention - the person with the appropriate access has to obtain the file and then another person has to upload the file into the target system. This file handling can’t be certified as it’s not secure, given the potential that the files could be tampered with.

Why are daily, direct-connect data feeds so important?

Firstly, let’s talk about administration:

To accurately and reliably automate the processing and reconciliation of trades and DRPs, a reliable source of trade information as well as daily balances is required. Wherever a third-party intermediary is involved or screen-scraping tools are used, accuracy is reduced and trades may be missed or recorded inaccurately. Without daily balance information, a system cannot automatically process DRPs.
To reliably process corporate actions in bulk across multiple funds, daily balance checks and balance amounts are required. Without this information there can be little confidence that the corporate actions are being processed correctly - and that re-work will not be required later. Knowing the balances as at the end of the most recent quarter is of little use under these circumstances as any number of buys, sells, DRPs and/or other corporate actions may have occurred in the meantime - rendering the previously obtained balances useless.

Next, we need to consider the end investor:

Without daily data feeds, the end investors are unlikely to have an up to date view of their investment data via an online portal or mobile app. This is an important consideration – without online access to their fund data, the end investor won’t be getting the experience and service they’ve come to expect from service providers.

Finally, let’s take a look at the audit process:

SMSF auditors have an obligation to verify that holdings as stated in the year end reports produced by the accountant are in fact correct. It’s a requirement that the auditor gets this confirmation from a reliable source.

Historically, auditors have gone and checked the holdings for share investments directly from the registry. This is usually done by visiting the share registry website (Computershare, Link, etc.)

Auditors are also able to rely on balance confirmation data from other sources, but only if that data comes with an appropriate certification e.g. ASAE 3402.

What an auditor cannot do is rely on second-hand information unless it is certified. This means that statements, contract notes, registry balance checks, even bank confirmations etc. are useless for audit purposes if they come from the investor, the planner, the accountant or any other non-audited secondary source.

“The ASAE 3402 allows us to be more efficient internally and externally with the SMSF auditor and audit process. We are spending less time chasing paperwork which gives our team more time to work on funds.” Krish Sritharan, Managing Partner, Super Centric

Read now: Data Feeds - The Facts That Matter. Part 2 - Why ASAE 3402 Matters.

Read now: Data Feeds - The Facts That Matter. Part 3 - Brokers vs Share Registries.