Getting ruthless with the costs

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Getting ruthless with the costs

Date: August 3, 2017

The true price of outdated IT in asset management

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In an increasingly competitive market, can asset management companies be successful without investing in technology that is more cost effective?

The spotlight is on every department to add value and help improve performance, and IT is no different.

As Citisoft call out in Times of Change: A Look Back and a Look Ahead at the Biggest Trends in Asset Management Tech and Ops, it’s difficult for the middle and back office to quickly respond to front office demands when working with legacy, sub-optimal technology stacks.

It says: “There are still countless asset management firms running mission-critical functions on enterprise software packages and applications that are, at best, struggling to keep up with today’s operational challenges and, at worst, borderline obsolete.”

This can be seen another way; by optimizing spending and focusing on areas where a real difference can be made, operating costs can be brought to heel.

Nowhere is this more evident than in the middle office, where the costs of shoring up legacy systems in terms of time and money have been well documented.

Firms know this and are directing their budget accordingly. An Ovum report, Financial Markets Technology Spending Through 2020: Location Segmentation, found that: “The strongest technology spend growth will be seen in the front and middle offices.

“In the front office, technology spend growth will be driven by a focus on client servicing and increased trading effectiveness. Risk and compliance will drive spending in the middle office,” it said.

But the asset management world today needs speed and accuracy; something that legacy systems increasingly struggle to do. Realization has been a slow process but this fact is now being recognized. The State Street 2013 Data and Analytics Survey conducted by the Economist Intelligence Unit found that decision-support for the front office was becoming a priority and that there was a need to move closer to real-time information.

Expensive antiques

Continuing to rely on legacy IT, built to provide bespoke services and functions, comes at a price in terms of:

Operational costs
Manual upgrades
Maintaining systems and multiple environments
Man-hours dedicated to mundane tasks

IT are so bogged down with keeping the lights on that it’s difficult to add value elsewhere. These legacy maintenance tasks don’t contribute to any competitive advantage; they are simply necessary tasks from an outdated technology model. Legacy systems also carry building costs, with physical servers required on site. Fighting to keep these systems going when they are actually obsolete and no longer fit for purpose does not make sense.

And it’s no secret that the vast majority of systems were not designed to cope with the complexity, volume of data, or indeed the speed at which the industry now needs this data to be processed. This is all the more so when it comes to complex investments and asset classes and further complicated by risk and reporting requirements.

And a piece by Citisoft, 3 Tech & Ops Trends to Watch echoes that sentiment. “The longer firms wait to address their legacy platform challenges, however, the more difficult, time-consuming, and expensive these projects become.”

It’s time to spend smart

Ignoring this turns a blind eye to the way that the asset management industry has changed, such as instancy being expected as standard. Expectations have evolved, and spending on the right software platforms to meet those expectations has the dual impact of also reducing costs.

In its 2016 Global Asset Management & Administration Survey, Linedata found that cutting costs and managing data was one of three main challenges within the asset management community. IT spending priorities were around improving legacy systems, risk and compliance solutions, and data management.

But if spending can be focused not on maintaining legacy systems and instead on investing in tech smart systems that are managed remotely, then time is created to free up the middle office to add more value. Managed software is taken care of by a third party and the middle office is unshackled to analyze data in new ways and drive better performance.

KPMG argues in its paper, Revolutionary change demands speed and agility in the asset management industry, that: “To remain viable and competitive, the time is now for asset management (AM) businesses to demonstrate a true sense of urgency and agility as rapid advances in technology dramatically reshape the entire industry. Future success will require radically different ways of conducting business in a digital world.

“Digitalization will be critical in enhancing and ultimately redefining the industry’s customer experience, positioning asset management (AM) businesses to attract, retain and grow customer relationships. Success will rely on meeting customer expectations for instantaneous, personalized digital interactions – from anywhere and at any time – within a secure and trusted environment,” it says.

Citisoft puts this simply: “It is imperative that firms step back and take a strategic view of their business. Embrace the journey, do the due diligence, and reap the rewards,” it says. Sitting still and putting up with the status quo will have calamitous consequences. The time to act is now.

Key takeaways:

The spotlight is on every department to add value and help improve performance.
Tasks associated to maintaining legacy systems don’t add any value to an asset manager. They are simply required as part of an outdated technology model.
Legacy systems are not fit for purpose. Asset managers must re-evaluate their operations and systems to support all asset classes, larger data volumes, and new reporting and transparency requirements.
Investing in tech smart systems that are managed remotely creates time and resources for the middle office to add value.

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