By Robert Ruck
When CutterResearch reported on Investment Accounting Solutions in June 2018, we uncovered several similarities between owning an investment accounting solution and owning a home. For example, although these purchases seem like long-term, potentially lifetime decisions, external factors often drive new decisions over time.
A recent study by the US National Association of Homebuilders indicated that although many buyers feel the home they are purchasing will be their forever home, a typical US homeowner finds a new home after about 13 years. Why? Because their needs change. Sometimes they find they need a bigger home, sometimes a smaller one. Sometimes they find they need amenities that their current home doesn’t offer.
Like home owners, most participating CutterResearch members (69%) have stuck with their original purchase for more than a decade. But overall, 57% are planning to make a change by 2020. Because like home owners, their needs have changed over time.
For many member firms, business has become more complex. They need broader asset coverage, newer technologies, and more modern features, and most firms planning to change their investment accounting solution are looking at new hosted or installed systems. A smaller portion of those planning to change are considering outsourcing, either looking to outsource accounting for the first time, or looking to change their current outsourcing service.
Even when outside circumstances force you to make a change, change can often be for the best. In the ten years since most firms purchased their investment accounting solution, many vendors have introduced new products or substantially updated existing products. Hosted solutions, managed services, and outsourcing have become more mainstream. Technologies have advanced and more solutions are available to investment managers than ever before. And like the real estate market, the market for investment accounting solutions is heating up.
Like replacing a home, replacing an investment accounting solution requires plenty of time, money, and work; it’s not something you want to do every couple of years. Investment managers need to think about their long-term needs and budget before making a buying decision with long-term implications.
"We currently do a large number of workarounds to accommodate the system’s limitations. A newer application would accommodate the instruments we are now trading and support the life cycle of these products."
~ CutterResearch Member
Couples, or smaller families, are free to choose smaller, simpler homes. In a similar way, firms with a vanilla book of business and no plans to increase complexity can look at relatively inexpensive solutions that can handle their basic requirements, such as processing equity and fixed income instruments. Buying decisions are more complex for growing families, and for firms with business requirements that are likely to grow more complex. For example, firms might anticipate increased needs for specialized processing such as insurance reporting, multi-basis accounting, or NAV calculation.
When buying a new home or a new investment accounting solution, a buyer needs to determine early on how much maintenance they’re willing to provide. Like buying a single-family home, buying a vended solution maximizes both control and responsibility for maintenance. And like buying a condominium or commonhold, buying outsourced or managed services reduces both control and responsibility for maintenance, and may offer services beyond investment accounting, such as providing a central source of data for multiple functions and reporting needs.
Like an old home, an established investment accounting solution has stood the test of time. It offers stability, but it raises questions. Will it need constant fixes? Will the technical foundation hold up over time? Will it meet newer standards? A number of the products currently available have been on the market for thirty years or more, which sometimes makes them difficult to upgrade. Some have been kept current, but others have fallen behind.
Recently, some new vendors have entered the investment accounting market, and their products typically provide newer technology than their more established counterparts. But like newer homes, the quality and stability of these solutions haven’t been time-tested, and they may come with a punch list of features that may not be fully functional, or that need to be added to the system.
Like moving to a new home, moving to a new investment accounting solution is hard work. Ending a relationship with a long-term provider can be like leaving an old friend behind. As children moving to a new town need to learn to navigate a new school system, employees on a new solution need to reorient themselves. When you’re moving to a new home, hiring a moving company can reduce your burden significantly, the same way working with an established consulting company can ease the transition to a new investment accounting solution.
When you identify legacy systems that need replacing or a need for new systems to support the business, turn to Cutter Associates to help you make informed decisions. We bring you the knowledge on the newest products, upgrades, technology trends, and industry best practices. Using our comprehensive guidance, you can quickly and efficiently narrow the universe of available solutions to find the perfect match for your unique mix of infrastructure, budget, timeframe, culture, resources, and strategic direction. Our impartial advice is always client focused – that’s why it is proven and trusted throughout the investment industry.
About the Author
Robert “Bob” Ruck joined Cutter Associates in 2017, bringing more than two decades of experience in financial services. Before joining Cutter, Bob was Strategic Client Director with FIS/SunGard where he managed a team of client service professionals and developers and provided oversight for multiple simultaneous large scale consulting projects. Previously, Bob was a Director at Advent Software and responsible for leading a team of 40 that supported the Geneva portfolio accounting system. He managed several high-profile client relationships including several of the largest fund administrators and prime brokers. Bob has also held Client Services roles at Omgeo, where he was responsible for client-related functions across Omgeo’s suite of products including Central Trade Manager, Alert, and Oasys, and at Thomson Financial Services, where he managed client related activities for the firm’s performance measurement product. Bob began his career at State Street Bank and Trust providing mutual funds technical support. Bob holds a B.A. in Economics and Religion from the University of Massachusetts.