Faced with crowded markets and higher expectations from clients and firm owners, investment management professionals are eager to use new technology to accelerate and improve their business performance.
Institutional Investor and SS&C Advent, recently partnered to survey 150 investment management professional, revealing strong interest in next-generation technology including artificial intelligence, machine learning, and natural language processing and closer integration of front-, middle-, and back-office functions - in an effort to control expenses and improve performance, as shown below.
Investment and operational executives see value in new technology and tighter integration of business processes
Over 90% of study participants are eager to adopt new technology and agree strongly or somewhat agree that closer integration of front-, middle-, and back-office business processes would yield substantial benefit to their firms.
However, this strong support for technology may be complicated by the tepid response of executives in this study. Note the proportion of respondents who only “agree somewhat” with several of these statements is greater than 50%, revealing that firms often struggle not with the high-level value of closer links between business processes but rather with the tactical steps that lie ahead. “There are a great many systems and improvements available,” says an IT executive at a midwestern wealth management firm interviewed for this study. “I don’t think we’re tempted to over-invest or do massive projects. Instead, we try to focus on the systems and vendors that are going to serve us well in the long term.” She cautions that vendor evaluation and “long-term viability” are important parts of IT’s oversight of technology systems.
Respondents generally give strong marks for their current systems’ support for some core capabilities – notably, portfolio management and regulatory compliance. However, study participants are less confident about their capabilities for processes such as trading, order execution, and management, and for managing client relationships and risk. A majority of respondents selected “adequate” rather than “excellent” to characterize their current systems for account and investor management, risk management, performance reporting, and portfolio accounting.
Amid “adequate” performance, investors seek better performance and lower costs in key investment processes
Queried on the business rationale for investment in technology and process improvement, a solid majority of respondents (63%) say they hope to lessen costs for trading/order execution and management (OEMS), and 58% see technology investment as a source of cost control in account and investor management activities. Conversely, such investments are likely to focus on performance improvement rather than cost control in areas such as risk management (63%) and compliance with regulation (55%).
Whether seeking to manage costs or boost performance, investment management firms will have to overcome barriers as they update and expand their technology systems. Survey data reveals that two factors – regulatory compliance and data security – are widely perceived as the most difficult to overcome. More than two thirds of respondents say concern about regulatory compliance (70%) and information security (68%) are top of mind, while staffing, expertise, and management buy-in are cited as formidable barriers by fewer than one-fourth of respondents.
Sources interviewed for this study shed further light on investment managers’ priorities as they tackle the next generation of technology in an increasingly connected, tech-driven commercial world. “Yes, of course we’re concerned about taking on new and costly projects,” says the IT leader of a midsized wealth manager in the Midwest, “but we’re tightly focused on security, cyber-crime, and data risk.” Similarly, says a principal at a small but growing wealth manager in New England, “You can’t overlook the cost and integration of new tech, but we know and can understand these sorts of problems, and we can deal with them. However, the broader problem of data security and the risk of hacking could bring big trouble. And with this risk also comes the problem of our response.” He says that his firm looks especially closely at prospective vendors’ ability to address data security questions “in real time, rather than saying that they’ll get back to us about it. We want to see that they’ve thought it through and are vigilant about security and privacy.”
For a more thorough discussion of this study’s findings, please download “Next Generation of Technology for Investment Management.”
