The financial services industry is being rapidly transformed by a digitalisation process that started some years ago and has many more years left to run. Investment managers – both for corporate and institutional clients, and for high net-worth individuals in the wealth management market – tend to be further behind on the digital transformation journey. Yet, our 2022 report, Digital Transformation in Investment Management, shows that the industry is now shifting to a cloud-first approach and we are already seeing a lot more solutions that are cloud based.
The time is now
Investment managers agree that digital transformation is a strategic priority. Key benefits include cost reduction, differentiation and additional revenues. Meanwhile, customer behaviour is changing rapidly, especially in the wealth management sector where tech-savvy younger age groups want to engage digitally with their financial advisers and money managers. There is fierce competition from discount brokers, who are mainly online-only. And the burden of regulation is becoming harder to handle for firms that have not adopted RegTech solutions for compliance monitoring and reporting.
Many asset managers used to be reluctant to move to cloud infrastructure because of concerns that regulators would object. Indeed, regulators used to be wary of cloud technology. In the past few years, however, their objections have receded, as long as guidelines are followed. The European Securities and Markets Authority (ESMA), for example, makes this clear in its Guidelines on outsourcing to cloud service providers.
Now is the time for investment managers to align their businesses with the opportunities that come from adopting cloud-based solutions. They can detach themselves from restrictions like legacy infrastructure, too much siloed data and a lack of connectivity – instead looking to the future operating model that drives innovation and customer value.
The benefits for investment management
The benefits of cloud solutions are being felt in just about all corners of investment management. Portfolio managers find that the computing power, scalability and agility of cloud services makes it easier and faster for them to analyse the pros and cons of specific assets, thereby giving them greater confidence in their investment decision-making. Risk managers use innovative cloud-based tools to assess the credit, market and operational risks their business is exposed to. Compliance managers have a wide range of RegTech solutions to choose from, to ensure the firm complies with all applicable laws, regulations, industry standards and internal rules.
Chief executives are attracted to all of the above, but mostly to the potentially lower costs and greater efficiencies that the cloud offers. They are also looking at the opportunities in expanding more easily into new investment products and services – with 83% of executives actively doing so according to a recent report by Accenture on The Future of Asset Management.
What challenges still exist?
There will, of course, always be some concerns when it comes to embracing the cloud, such as security, implementation and evaluating the type of deployment and service models. The major cloud service providers (CSP) like Microsoft Azure and Amazon Web Services are well proven with their high levels of security, although investment managers will still want to be aware of procedures and protocols.
There are also three cloud service models to consider. Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) models both involve a CSP supplying infrastructure over the internet, but with the firm developing and running its own software on top. The third and most comprehensive option is Software-as-a-Service (SaaS), whereby cloud infrastructure and investment management software is provided as a complete package, as in the case of Bricknode Broker. SaaS is proving the most popular among investment firms because it requires the least effort on the part of the user. There is no need to build, maintain, or update any of the technology. It is also more accessible to small and medium-sized investment firms that do not have as many resources as the bigger players.
Cloud services are accelerating growth
Cloud is enabling investment managers to accelerate their growth with the potential for lower costs, better scalability and ease of introducing new products and services.
“Cloud-first” has become the dominant IT strategy for investment management companies. Most industry observers believe that cloud is the future for the industry, and for the economy and society as a whole.
If you’d like to learn more about how cloud and SaaS are being used in investment management, download our 2022 report, Digital Transformation in Investment Management. And if you’d like to talk about your own requirements, don’t hesitate to get in touch.