Future-Proofing the Front Office: The Cloud
Part 1 of a 3 part series on Future-Proofing the Front Office.
Emerging technologies are propelling buyside front-office trends while simultaneously delivering a competitive advantage to forward-thinking investment firms. Three disruptive technologies are the driving force behind the most significant changes to the industry—namely, the cloud, data analytics powered by APIs, and artificial intelligence (AI).
Because adopting cloud-based asset management software is the foundation for harnessing the power of data analytics and AI, firms that prioritize cloud-driven modernization can now begin future-proofing their organizations.
With cloud end-user spending expected to reach $600 billion in 2023, wealth managers wanting to stay at the front edge of the industry should prioritize cloud investments. While it’s never wise to modernize solely based on projected industry trends, implementing cloud-based asset management software can transform any wealth management firm.
All front-office operations—including trading, portfolio management, and compliance—benefit significantly from modernizing investment management tech solutions to simplify investment operations and deliver a better end user and customer experience. More importantly, in an era defined by challenging market conditions, increased costs, and downward fee pressures, it’s more important now more than ever to streamline business functions and retire costly legacy systems.
However, with significant impacts on the entire firm, it’s critical to understand how to approach modernization in a way that yields a successful implementation. And doing so involves understanding the nature of the cloud and the power of cloud-based asset management software to disrupt the industry for the better.
What is the Cloud?
The origins of the cloud, loosely defined as cloud computing, are as old as computing itself. Originally governments and large corporations owned massive mainframes that users accessed by renting systems from the owners and operators. Everyone used these systems for on-demand computing that relied on shared resources and data.
However, in the 1990s, a big change took place. As the personal computing industry took off with Microsoft and Apple delivering desktop systems, most uses shifted from mainframe computing toward internal on-premise networks. Shortly after that, internet usage also exploded, and browsers became the dominant way to look for and share information.
How Big Data Led to a Cloud-Based Approach
The rapid expansion of the internet also created another technology trend—big data. As the amount of data gathered grew exponentially, data storage became a challenge for companies of all sizes. Individual desktops and on-premise systems were too small to handle the flood of data created by ever-expanding internet usage and the desire to analyze this data.
A new industry emerged as businesses developed technology solutions to solve these problems. The concept of cloud computing re-emerged with the advent of web access to cloud-based solutions. Why? These tools shifted processing back to the large computing providers with ample processing power. However, two critical questions remained:
- How do you access data?
- Is the data secure?
While the cloud computing industry set out to solve these problems, many enterprises, including investment firms, continued managing their software solutions internally, which led to significant buyside IT costs. Because this approach is not sustainable for the long term, many investment firms began to reimagine their ideal scenario. As IT consultants and hosting providers stepped in to meet the demand, cloud-based asset management software was born.
Hosting Becomes the Cloud
In a hosted model, a third party takes care of the physical IT infrastructure required to run investment management business applications. By taking the pressure off firms to develop expertise in IT, wealth managers can utilize cloud-based asset management software and focus on what they do best—asset management and growth.
Because many firms believed that maintaining their tech was better and more secure than handing it off to a third party, this trend was initially slow to take off. However, as internet access became more reliable and remote or hybrid work became the norm in a post-pandemic world, more and more investment managers began to switch over.
By shifting to the cloud, wealth managers also benefit from enhanced business continuity planning (BCP) and disaster recovery (DR) capabilities. In addition to being industry best practices, buyside firms must demonstrate these capabilities to their investors.
Should Investment Managers Choose Private Cloud or Public Cloud-Based Systems?
Within the cloud-based asset management software model are private and public cloud options.
The private cloud model utilizes a third-party provider that maintains the client’s front office software, servers, and data within its own cloud and network. The client accesses their cloud OMS, Portfolio Management Systems, and other cloud-based asset management software directly from the third-party who typically also provides the solution. By keeping clients segregated, they ensure that data is not comingled, which is best practice for firms looking to satisfy their data privacy and fiduciary obligations to their end clients.
The public cloud model, which is gaining traction, features cloud computing services offered by large global tech companies, including Amazon (AWS), Microsoft (Azure), and Google. The public cloud is growing in popularity for three primary reasons:
- These global companies have the potential to reduce IT costs for businesses and consumers.
- Their massive and elastic computing resources can make emerging technologies like data analytics powered by APIs and AI more effective.
- The public cloud can simplify the move from single-tenant solutions to multi-tenant cloud-based asset management software options, including software as a service (SaaS) products.
How Are Single-Tenant and Multi-Tenant Solutions Different?
Investment firms considering moving to SaaS-based solutions utilizing private or public clouds can take advantage of significant benefits. However, organizations must carefully consider how to deploy these cloud-native or born-in-cloud solutions. Doing so means understanding the differences between the systems and the advantages of each.
In a single-tenant model, an investment manager’s cloud-based asset management software applications, data, and resources reside on a dedicated private network, which can either live in a private or public cloud. Conversely, the multi-tenant model comingles data from different clients onto one system.
Many investment managers are concerned with the idea of commingling data with other wealth management firms who are their competitors, and rightly so. Factors to consider include data privacy, fiduciary obligations to clients, and data portability. Using a multi-tenant system often makes it more difficult to migrate data and transfer control exclusively to the software provider, creating undue business risk and expense.
Moving to the Cloud is a Must
Despite many wealth managers holding tight to their legacy software systems, which often necessitate using Excel spreadsheets and other supplemental systems to extract and manipulate data manually for analysis, the writing is on the wall. The cloud is here to stay.
Firms that want to play a part in the future must adopt a robust cloud-based asset management software solution or risk getting left behind. Doing so reduces reliance on costly, outdated legacy systems while delivering operational efficiencies. With up-to-date data, improved analytics, and AI-driven insights, firms gain a competitive advantage and stand out from the competition.
In addition to running a tighter ship, wealth managers who move to cloud-based solutions can often deliver a better customer experience to their clients.
INDATA’s asset management software helps investment firms modernize, simplify, and reduce costs while leveraging leading technologies like the cloud, web, APIs, data analytics, and AI to increase efficiency and profitability. Schedule a demo to learn how our IPM Cloud and other solutions can help your firm.