A lot has been written about the high levels of legacy technology within the asset management industry. There are many reasons why this is still the case. The way technology was layered-up over time as various solutions came to market, both internally developed and from a large backdrop of third-party providers, is one of these reasons.
The pace of this technology pile-up has slowed as more and more firms buy instead of build, and the number of external vendors has consolidated. This hasn’t dealt with the legacy issue, but at least there is less fuel for the fire. Switching out and replacing legacy technology can still be a painful process.
Many early systems built in the late 90’s and implemented in the following years needed customization and extensions to be developed to plug gaps in functionality or to make up for a lack of operational tools. This has resulted in very ‘sticky’ systems that need careful planning to be extracted safely without creating unacceptable levels of operational risk.
So, what are the routes out of legacy central?
Route one: Select new front and middle office systems in partnership with FinTech providers.
With so much technology sat in the front, middle, and back offices within asset managers, it’s obvious that a migration strategy will take time and be done in stages. A big bang approach is simply not possible, and each component and application must be assessed across a swathe of variables. Data management is a key consideration and often the first strategy to be reviewed. So many systems within an asset manager share and exchange data, it’s critical to ensure that new systems can interact with the old. Web APIs to enable efficient data transfer, and data Lakes to help manage multiple data types along with the publishers and subscribers to data are essential components in preparing for application migrations. A focus area needs to be on the non-core IT operations that have mature cloud-based software-as-a-service solutions available. Many asset managers will have already started this. A good example is corporate email. Who needs to run their own email platform these days? Services such as Microsoft Office 365 provide secure email services in the cloud that can be accessed from anywhere on any device.
Stepping further into asset management operations brings you to other potentially non-core IT functions that could be migrated to new technology. In the middle office, performance measurement and portfolio analytics systems are just two examples where many asset managers still maintain legacy on-premise platforms when established cloud-based SaaS solutions exist.
Partnering with the right FinTech provider can help asset managers move away from managing and maintaining IT platforms, to simply using the application and managing service levels with partners. This route helps asset managers work closer with the stakeholders of the information and focus on core competencies such as the investment decision making process, the analysis, and the clients themselves.
Route two: Consolidate front and middle office systems through existing providers.
The front and middle office are moving closer and closer to each other but still have their unique needs and use cases. There are platforms and technologies out there that can sit across both teams allowing for legacy on-premise technology to be moth-balled. Data management, analytics and reporting are areas where systems can be consolidated. Options in this space can be expensive, especially if the route is to consolidate multiple systems into terminal-based solutions that require each user to have a terminal on a high monthly fee. Cloud-based platforms also exist that provide functionality suitable for the needs of both the decision-orientated front office and the reporting focus of the middle office. There is no doubt that system overlap exists in almost every asset manager. The trick is finding a platform that is flexible and complete enough to make consolidation possible.
Route three: Going all in on a platform that promises to do everything.
All encompassing platforms are coming to the fore that promise to enable hyper-consolidation across front, middle and back office operations. This route is certainly one that can help remove a lot of legacy on-premise technology, but at what cost? These platforms are often several million dollars of investment and can take years to implement. Only then do small but often important details emerge in relation to gaps in functionality that compromise capabilities or service levels. Details that more niche solutions take note of can get missed in giant platform projects.
Route four: Outsourcing
A growing solution to the asset management legacy technology issue is to outsource an entire function to a service provider. Let’s stick with the middle office and look at the performance measurement process as an example. Many asset managers struggle with data management when it comes to detailed, daily transaction-based performance. Asset managers want to analyze and report on the data, but they don’t need to manage the daily issues when someone else can do it as part of their core focus. Outsourcing data management, performance measurement, and risk, but still wanting a level of control and access to ‘the system’ requires a flexible platform. The advantage of a cloud-based system such as StatPro Revolution is the service provider can manage all the data management complexity, while the asset manager can still have interactive access to the same platform, but only interacting with the analytics they want to focus on. User roles and permissions make this possible. The same system, but two separate audiences working on it. The asset manager has outsourced the service and moved away from legacy technology, but still has interactive access to the analytics and reports whenever they want.
In practice, we know there are many complexities to implementing a technology replacement strategy. Many components, applications and data-sets are intrinsically linked and need careful impact analysis before they are replaced. However, the reality is that action is needed. Legacy systems don’t only create high levels of operational risk and inefficiency—the failure to act and put a strategy in place also firms being left behind in a competitive environment.