May 2, 2016 | Matthew M. Caulfield, Executive Vice President, Head of Client Experience
Wealth is on the upswing, specialty investment opportunities abound and access to market information is prolific. Changing strategies and investor mobility force structural and procedural refinement. As it supports product and distribution innovation, the world of investment management operations is now more complex than ever. Yet, it remains one of the areas in the financial world that is not benefiting from significant technology innovation. The fintech boom, as many are calling it, instead seems primarily focused on creating new offerings and experiences in the retail banking and consumer-facing financial sectors.
As a result, investment managers across a spectrum of products, channels, and styles are being stymied by the challenges of navigating the complexity of the daily operations of their businesses. While many managers may be delivering on the promise of investment results, they are concurrently in a race to grow AUM, expand product offerings, wade through new regulations, and keep operating costs within reasonable limits. Firms in the $1-20 billion asset under management range are the hardest hit as they struggle to achieve efficiency at a smaller scale. Such firms have often outgrown their in-house technology and spreadsheets yet lack the scale to support the costs of institutional-level support.
Most investment management firms operate on technology systems developed in the late 80s and early 90s in response to the market boom. Since then, the investment management space has experienced radical change and diversification in available products and competition, in the amount of information available, in the way that investors expect to be communicated with and in the way that managers bring their strategies to market. Yet legacy systems remain the foundation of the business, amended by years of incremental changes to existing technologies in the form of patches, band-aids and add-ons that accommodate problems but lack the impact of true innovation. Newer solutions may resolve existing issues, but scalability across channels and products, as well as connectivity to critical partners remain limited. For example, a reconciliation process built for institutional accounts is not likely scalable for retail accounts, but increasingly institutional managers are looking to expand their successful strategies into retail channels. An exponential growth in diversified assets isn’t likely to be easily accommodated by existing systems architecture.
Transforming investment management technology support is the obvious answer to managing complexity, cost, and growth, but complex systems and longstanding entrenchment in processes built over years are formidable barriers to change. Rather than fit their investment management business to legacy solutions for operations, investment managers must work with a change catalyst that is willing and able to fit a new solution to their business.
When customizing and implementing new technology, the ultimate goal must be enabling an investment management firm’s growth. Key considerations in planning for growth in the new investment management environment are: compliance, visibility, flexibility, scalability and efficiency. New technology must have the ability to handle key compliance concerns, like SEC cybersecurity guidelines and SEC audits. They must provide advanced capabilities related to data access, visibility and reporting, like the ability to see firm-wide market exposure to asset classes, securities, industries, etc. Systems and operations must facilitate specific success measures, like completing custom billing processes, and ultimately firm growth, enabling new products and new distribution channels. Everything must scale at reasonable cost to fit growth without detracting from core business.
At the outset, pursuing change on this scale seems dramatic and onerous relative to the temporary-fix model that has been an adequate solution for years. However, the current approach only exists because there hasn’t been a superior alternative. As fintech innovation begins to target investment management operations, this is changing. The time is ripe for firms to begin taking a critical look at their current systems architecture and evaluating key pain points and areas of opportunity. But more importantly, firms must evaluate their goals and leverage the right technology solution to fully position them for growth.
Matthew M. Caulfield
Executive Vice President, Head of Client Experience
Matthew M. Caulfield, Executive Vice President, has over 30 years’ experience in the asset servicing industry. His consultative approach has resulted in clients’ ability to realize revenue streams through new product launches and entry into new distribution opportunities, while increasing efficiency and reducing risks and costs. Matt oversees all aspects of client experience, including marketing, sales, solutions, relationship management and client services all geared towards enabling asset managers to achieve their goals through benefit-centered solutions.
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