are you counting the cost - advent...
TRANSCRIPT
Are you counting the cost of your legacy system?
Is your current system holding you back? Are you ready for regulatory changes?
Read our seven sure signs that you have outgrown your portfolio management system.
To find out more visit www.capitaltrends.com
EDITORIAL
FUNDS EUROPEGROUP EDITOR Nick Fitzpatrick Tel: +44 (0)203 178 5875 [email protected] DEPUTY EDITOR Stefanie Eschenbacher Tel: +44 (0)203 178 5876 [email protected] SENIOR staff writer George Mitton Tel: +971 (0) 4295 4618 [email protected] STAFF WRITER Alix Robertson Tel: +44 (0)203 427 5224 [email protected] EDITORIAL DIRECTOR Fiona Rintoul [email protected] TECHNOLOGY & OPERATIONS EDITOR Nicholas Pratt [email protected] SUB-EDITOR David Ryan ART DIRECTOR Lucy Erikson PUBLISHER Alan Chalmers Tel: +44 (0)203 178 5877 [email protected] GROUP SALES MANAGER David Wright Tel: +44 (0)203 178 5878 [email protected] EDITORIAL AND EVENTS COORDINATOR Paula Towner Tel: +44 (0)203 178 5874 [email protected] WEB MANAGER Steve Dimitrov Tel: +44 (0)20 3178 5873 [email protected] READERSHIP ADMINISTRATOR Michael Fennessy Tel: +44 (0)20 5347 5226 [email protected]
EDITORIAL ADVISORY BOARD Penelope Biggs Northern Trust, London Nadine Chakar BNY Mellon, New York Jean-Baptiste de Franssu Incipit, Brussels Peter Elam Håkansson East Capital, Stockholm Robert Parker Credit Suisse, London Todd Ruppert RTR International, London & Baltimore
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3 funds-europe.com
JUST BECAUSE THERE IS SO LITTLE IN-HOUSE DEVELOPMENT THESE
DAYS, IT WOULD BE WRONG TO THINK
LEGACY SYSTEMS ARE A THING OF THE PAST.
SPOTTING THE SIGNSLegacy technology conjures up nostalgic images to me. An Atari games
console, playing Pac-Man and Pong to a soundtrack of 80s synth pop on
cassette – all washed down with lashings of ginger beer, made in a Soda
Stream, of course.
Heads of IT and chief operating officers do not look at legacy systems
quite so fondly, though. For many they are the stuff of nightmares, from
the realisation that the 20-year-old system at the heart of the firm’s
infrastructure can no longer go on, to the painful and prolonged process
of replacing that unique piece of technology, specifically designed for
the firm, with something from a third-party vendor.
So perhaps I should not have been surprised when – during the panel
debate reported on page 16 – I asked if we should mourn the apparent
demise of these one-off systems, and the response was an overwhelming
‘no’. There is nothing romantic in designing your own software, I was told.
But just because there is so little in-house development, it would be
wrong to think that legacy systems are a thing of the past. Technology
moves at such a quicker rate than it used to, rendering software as
‘legacy’all the sooner.
Many vendors are releasing two updates a year and have to ensure
that their clients keep up to speed with new versions, which can be
hard to do when the old system appears to be fine. We are now seeing
this in personal computing with Microsoft’s decision to stop supporting
Windows XP.
Legacy issues will always be there, even in an outsourcing relationship.
What is important for asset managers and their operations teams is that
they are able to spot the signs of impending legacy and are prepared
for the necessary changes. The following report is designed to help you
identify these signs and give you some ideas about how to replace any
outdated technology.
Nicholas Pratt
Editor, technology and operations
funds europePublished by Funds Europe Limited288 BishopsgateLondon EC2M 4QPTel: +44 (0)203 178 5872Fax: +44 (0)203 178 4002© Funds Europe Limited, 2014Total average net circulation 10,257Audit period 1st July 2012 - 30th June 2013
ISSN 1477-4453
Printed by Buxton Press
The views expressed in Funds Europe do not necessarily coincide with the views of the publishers. Although the publishers have made every effort to ensure the accuracy of the information contained in this publication, neither Funds Eu-rope Limited nor any contributing author can accept any legal responsibility whatsoever for any consequences that may arise from errors or omissions contained in the publication or from acting on any advice given. In particular, this publication is not a substitute for professional advice on a specific transaction.
4
CONTENTS
Spring 2015
5 funds-europe.com
THE BIGGEST PROBLEM WITH LEGACY TECHNOLOGY IS ACTUALLY REPLACING IT.
Steve Young, Citisoft
06 SURVEYFunds Europe’s inaugural survey of legacy
systems offers an in-depth study of how legacy
technology is used and the industry’s attitudes
towards outsourcing and cloud computing
14 SPONSORED PROFILEFunds Europe talks to Hakan Valberg about the
vendor experience of moving clients from their
legacy systems.
18 ROUNDTABLEAfter discussing how to identify a legacy system
and deal with its operational challenges, our
experts contemplate what the IT department of
the future might look like
26 INTERVIEWAn asset manager’s operations head talks about
the legacy challenges of days gone by and the
present-day strategies – such as outsourcing –
designed to avoid such issues in the future
18PAG
E
2618
18
funds-europe.com
6 Spring 2015
SURVEY
7funds-europe.com
Funds Europe sought the views of European asset managers in December with the first comprehensive survey on legacy systems. The results reveal just how much of a problem outdated technology poses.
OUT OF TIME
operational problems asset
management firms face: the state
of their legacy systems and how
best to replace them.
In all, 67 executives responded.
As well as heads of IT and chief
operational officers, these
included managing directors and
chiefs of staff, lending weight to
the argument that, far from being
limited to technology teams,
legacy issues are now boardroom
concerns too.
The questions are grouped
into three distinct categories.
The first of these involves firms’
operational strategies and
the nature of their planned IT
investment; the second examines
the prevalence of legacy systems,
the operational problems they
create and the economics of
replacing them; and the final
section looks at the alternatives
to legacy systems.
The results show that legacy
systems are still present in more
than half of asset management
firms and are widely
acknowledged to be a problem
– not so much in terms of their
performance, but rather their
lack of compatibility with other
systems and the increasing cost
of maintenance.
Conscious of software’s
diminishing shelf life, it seems
that more and more firms
are considering alternative
approaches to in-house
installation such as outsourcing
and cloud computing.
Fears over data security and
the immaturity of suppliers is
holding back wider adoption –
but as legacy issues come to a
head, many firms may be forced
to overcome such concerns.
OPERATIONAL STRATEGY (QUESTIONS 1-3)According to respondents,
the primary drivers for firms’
technology investments are more
or less evenly spread between
operational efficiency (63%) and
business growth (59.7%), with
regulatory initiatives (49.3%)
slightly behind and system
consolidation/cost reduction
(23.9%) trailing further back.
These figures support what we
have heard anecdotally over the
past 12 months – that the focus
on cost-cutting and compliance,
which has dominated budgets
since the start of the financial
crisis, is finally fading.
Instead, firms are now devoting
the majority of their IT investment
into more positive channels –
either technology improvement
or new product development and
LEGACY SYSTEMS ARE STILL PRESENT IN MORE THAN HALF OF ASSET MANAGEMENT FIRMS AND ARE WIDELY ACKNOWLEDGED TO BE A PROBLEM.
LEGACY SYSTEMS HAVE long
been the stuff of nightmares for
asset managers’ IT departments.
When the term was originally
coined, ‘legacy’ referred to
a 20-year-old system that
was impenetrable to all but
the individual who designed
it. That person had left the
company some time ago, but in
the meantime, the system had
become embedded in the heart
of the IT infrastructure, lodged
like a bullet in the cranium. You
knew it should be removed, but
worried that the process could
trigger a fatal haemorrhage.
Things may be somewhat
different in 2015 with the rise
in outsourcing and with cloud
computing starting to gain
traction among asset managers.
But legacy issues have not
disappeared. There are still
four or five-year-old systems
that are no longer supported
by the vendor – and like a
household appliance for which
you can no longer obtain parts,
these need to be replaced before
they break down irreparably.
And as if that weren’t worrying
enough, the pace of technological
advances means that software
has an ever-decreasing shelf life,
granting systems the unenviable
‘legacy’ tag all the sooner.
Issues such as these have
prompted an inaugural survey
designed to shed light on one of
the biggest and most persistent
8 Spring 2015
SURVEY
LEGACY SYSTEMS (QUESTIONS 4-7)The most illuminating series of
answers come from questions
4-7. Firstly, legacy systems are
present within either the core
portfolio management or fund
address the more profound and
long-term development work
needed at the heart of their IT
infrastructure. One can assume
from the survey results that some
of this work will involve replacing
legacy systems.
helping to support expansion into
new products or markets.
Following years of miserly
budgeting at some firms, IT
infrastructure has been neglected
and is in need of updating. The
problem takes on an urgent
note when a firm sets out to do
something new, only to discover
that system limitations are
holding it back.
Looking at the answers to
question 3 and the nature of
firms’ operational strategy, only
38.8% of respondents state that
their systems and processes
are satisfactory. More than a
third (34.3%) say that their
current systems and processes
are unable to meet the firm’s
objectives, while almost a quarter
say that systems and processes
are under such strain that they
will need either significant
bolt-ons (13.4%) or significant
upgrading or development
(10.4%).
When we look at where firms
plan to direct their IT investment
over the next three years, overall
IT infrastructure (58.2%) is the
clear priority with an importance
almost twice that of positions
management, compliance and
reporting (31.3%). In the past,
most of an asset management
firm’s IT budget was taken up
with meeting new regulatory
requirements. Given that
this provided no competitive
advantage, money was spent on
quick fixes and patches.
Though compliance remains
a big driver of IT investment, it
seems that many firms intend to
1. WHAT IS PRIMARILY DRIVING YOUR TECHNOLOGY INVESTMENTS?
2. WHERE DO YOU SEE MOST OF YOUR IT INVESTMENT IN THE COMING THREE YEARS?
3. OVER THE NEXT THREE YEARS, WHICH OF THE FOLLOWING BEST DESCRIBES YOUR OPERATIONAL STRATEGY?
PROBLEMS ARISE WHEN A FIRM SETS OUT TO DO SOMETHING NEW, ONLY TO DISCOVER SYSTEM LIMITATIONS ARE HOLDING IT BACK.
70%
60%
50%
40%
30%
20%
10%
0%
Business growth into new products/markets/regions
Regulatory initiatives
Operational efficiency
System consolidation/cost reduction
Other
70%
60%
50%
40%
30%
20%
10%
0%
Overall IT infrastructure
Trade execution and order management (front office)
Positions management, compliance and reporting (middle office)
Fund accounting and reconciliation (back office)
Other
Systems and processes are largely satisfactory and will remain so with normal organic development
System and processes will need to be changed to enable the organisation to meet its objectives
System and processes are under pressure and will require fairly significant bolt-on developments
System and processes are under severe strain and will require significant upgrading and development
Other
3%
39%
34%
14%
10%
9 funds-europe.com
accounting platforms in almost
three-quarters (73%) of firms.
There may, though, be some
scepticism about the 16% of
respondents who say they have
no legacy systems at all.
While some companies may
be in denial about the state of
their IT, there are also a number
of start-ups that have had the
benefit of starting with a blank
slate, either bringing in new
technology or outsourcing the lot.
Of course, it could be that a
number of firms are sufficiently
well-organised to have ensured
that their core platforms are free
of legacy, limiting the blight of
outdated systems to periphery
platforms and technology.
Then there is the other
possibility, indicated by the 7.5%
of people who answered ‘don’t
know’ to question 4, that people
simply don’t recognise a legacy
system when they see one.
Looking at the operational
challenges created by legacy
systems, it is clear that the
most pressing issue is not a
lack of performance (cited by
only 16.4%). Instead, many of
the challenges reflect firms’
relationships with vendors –
either difficulty in updating
systems (28.4%) or the high cost
of maintenance.
The most commonly cited
challenge was the incompatibility
of legacy systems with other
technology (40.3%). This
provoked an additional comment
from one respondent, who laid
the blame for legacy issues at the
door of vendors rather than users.
4. TO WHAT EXTENT DO YOU EMPLOY LEGACY SYSTEMS WITHIN YOUR CORE PORTFOLIO MANAGEMENT OR FUND ACCOUNTING PLATFORM?
THE MOST COMMONLY CITED CHALLENGE WITH LEGACY SYSTEMS IS INCOMPATIBLITY WITH OTHER TECHNOLOGY.
Not at all
Slightly
A lot
Don’t know
Other
3%16%
48%
25%
8%
10 Spring 2015
SURVEY
“If a client has a legacy system, it
is the provider’s role to adapt to
the system and not to change it.
The more you, the supplier, push
against the legacy system, the
more your clients will become
frustrated by the inability of
the new system to provide
information with the clarity of
the old system.”
One is tempted to say:
“Good luck with that,” but
such a comment underlines
the challenge facing vendors
and clients when replacing
legacy systems with a third-
party alternative. As well as
the operational risk that the
replacement process will be
highly disruptive and won’t
perform as well or consistently
as the old one, there is also an
economic challenge.
Nonetheless, the survey results
suggest most firms are confident
that the replacement will prove
to be economically positive.
When asked, almost half of those
surveyed (49%) accept that there
is an initial cost involved but that
it will provide a return in the long
term. In addition, 19.4% believe
that the decreasing cost of third-
party software is making the
process ever more cost-effective.
OUTSOURCING OPTIONS (QUESTIONS 8-9)The alternative to installing
replacement systems is to
outsource. As question 6 tells us,
more than half are taking this
option with either a completely
outsourced or hosted model
(22.4%) or a part-outsourced
model (34.3%). The response
to question 8 suggests that the
outsourcing trend is about to
grow stronger, with the majority
(58.2%) set to increase their
spending on outsourcing or
hosted solutions over the next
three years and only a small
minority (7.5%) likely to reduce
this spend.
Looking more specifically at
5. WHAT IS THE BIGGEST OPERATIONAL CHALLENGE CREATED FROM LEGACY SYSTEMS?
6.IF YOU ARE EXPERIENCING CHALLENGES WITH IN-HOUSE LEGACY SYSTEMS, WHAT SOLUTIONS ARE YOU CONSIDERING?
7. HOW DO YOU VIEW THE ECONOMICS OF REPLACING LEGACY SYSTEMS WITH THIRD-PARTY SYSTEMS?
MOST FIRMS ARE CONFIDENT THAT REPLACING LEGACY SYSTEMS WILL PROVE TO BE ECONOMICALLY POSITIVE.
50%
40%
30%
20%
10%
0%
Difficulty in updating
Lack of performance
Incompatibility with other systems
High cost of maintenance
Other
Investment in on-premise third party systems, you have a controllable cost structure and you simply have to manage the vendor relationships.
A completely outsourced or hosted approach to IT services where you don’t have any infrastructure or hardware to worry about.
A part-outsourcing model to third party service provider(s)
We don’t employ legacy systems
Other
6%22%
34%
28%
9%
An initial cost that will be provided in the long-term
More expensive but necessary to maintain competitiveness
Becoming more cost –effective all the time due to the decreasing cost of third party software
Other
6%
49%
25%
19%
11 funds-europe.com
where exactly this outsourcing
investment will be directed, the
back office (43.3%) remains
the main destination, but it is
clear that other functions are
increasingly considered to be
suitable for outsourcing. These
include risk management,
investment research, portfolio
management/daily NAV
processing and even front-office
functions such as trading (6.0%)
that were previously considered
too proprietary to be left in the
hands of a third party.
CLOUD COMPUTING (QUESTIONS 10-13)It’s apparent that firms are
reconsidering which processes
are a genuine core competency
(to be kept in-house and as
proprietary as possible) and
which are commoditised
and non-competitive. These
considerations might be further
influenced by the maturity of
cloud-based services. Indeed,
the final section of the survey
suggests that asset managers are
warming to the idea of storing
data in the cloud.
According to question 10,
although more than half of the
respondents do not currently use
cloud solutions for any part of
the transaction life-cycle process
(52.2%), question 11 shows us
that a similar percentage (44.8%)
do intend to invest in cloud-
based technology over the next
three years. More than a third
(35.8%) are unsure, leaving less
than a fifth (19.4%) who have no
plans to do so at all.
When it comes to data types,
there are similar if not greater
levels of uncertainty about how
and where cloud technology
would be deployed. For
example, while almost half of
the respondents (44.8%) are
comfortable putting external or
market data into the cloud, an
equal number are unsure what
sort of data they would trust to it.
8. TO WHAT EXTENT DO YOU SEE YOUR SPEND ON OUTSOURCED TECHNOLOGY SOLUTIONS/HOSTING BY THIRD PARTIES CHANGING OVER THE NEXT THREE YEARS
9. IF YOU ARE WILLING TO OUTSOURCE, WITHIN WHAT AREAS WOULD YOU BE MOST LIKELY TO OUTSOURCE TO THIRD PARTIES?
10: DO YOU TODAY USE CLOUD TECHNOLOGY SOLUTIONS TO SUPPORT THE TRANSACTION LIFE-CYCLE PROCESS?
THE BACK OFFICE REMAINS THE MAIN DESTINATION FOR OUTSOURCING INVESTMENT, BUT OTHER FUNCTIONS ARE INCREASINGLY CONSIDERED TO BE SUITABLE.
70%
60%
50%
40%
30%
20%
10%
0%
Increasing
No change
Decreasing
Don’t know
50%
0%
Investment research
Accounting and reconciliation
Regulatory compliance and reporting
Trading
Risk management
Portfolio/Fund Management – daily NAV processing
Other
No
Yes
Partly
29%
19%
52%
12
SURVEY
Spring 2015
Given that concern about data
security is by far the biggest
obstacle (67.2%) to the more
widespread adoption of cloud
technology, the uncertainty about
what data to send to the cloud is
only to be expected. However, as
the other two hurdles mentioned
are unfamiliar providers and a
lack of solutions, the immaturity
of the vendors is as much an
issue as the concept of cloud
computing itself.
As vendors in the cloud space
become more familiar to asset
managers and introduce a
broader range of services, there
is every reason to expect that
the adoption of cloud services
will grow considerably in the
years to come. In some respects,
the timing could not be better.
The issue of legacy technology
has been around for as long as
systems, and the time it takes for
technology to become obsolete
is shortening all the time.
The days of an age-old
portfolio management system
remaining at the core of a firm’s
IT infrastructure are definitely
over, as are the days of the in-
house designed system. But as
more asset managers hand over
IT responsibilities to third-party
software vendors, the problems
associated with legacy systems
show no signs of disappearing.
These problems simply
transfer to the vendors, whose
responsibilities then include
making sure their clients use the
latest version of their software.
What easier way to do this than
to assume responsibility for IT
maintenance on their behalf?
Though there may be some
trepidation about the safety
of their data (particularly
confidential client data) and
trusting their IT to a third party,
the ongoing cost of avoiding
legacy issues will hasten the
move to outsourcing and the
cloud. For many firms, the clock
is ticking. fe
13. WHAT IS PREVENTING YOU FROM USING CLOUD-BASED SOLUTIONS?
11. DO YOU INTEND TO INVEST IN CLOUD-BASED TECHNOLOGY SOLUTIONS IN THE COMING THREE YEARS?
12. WHAT DATA ARE YOU COMFORTABLE PUTTING IN THE CLOUD?
THE DAYS OF AN AGE-OLD PORTFOLIO MANAGEMENT SYSTEM AT THE CORE OF A FIRM’S INFRASTRUCTURE ARE OVER.
Yes
No
Not sure
19%
36%45%
50%45%40%35%30%25%20%15%10%
5%0%
External data (market data)
Positions data Client data Not sure Other
80%
70&
60%
50%
40%
30%
20%
10%
0%Lack of suitable solutions
Concern about data security
unfamiliar providers
Other
13 funds-europe.com
1414 Spring 2015
SPONSORED ARTICLE
ONE OF THE biggest challenges
for vendors is helping clients
to recognise when they have
outgrown a platform and when it
has assumed ‘legacy’ status.
There are typically three
catalysts that lead firms to arrive
at this situation, says Hakan
Valberg, president of Advent
Software EMEA. The first is cost
– it becomes uneconomic to try
and maintain a system over a
long period when they become
outdated and rely on lots of
manual intervention; then there
is compliance – a new regulation
may have particular reporting
requirements that cannot be
met by existing systems; finally
there is a change – the firm may
want to enter a new market but is
prevented from doing so because
of legacy technology.
“Most firms will initially look
to make a series of small fixes
as required because changing
platforms is seen as such a large
commitment of both time and
money. But in many ways, that
approach is just creating another
challenge for the future,” says
Valberg. Often things will come
to a head when a firm falls foul
of compliance rules – either a
client’s mandate or a regulator’s
reporting requirement. However,
ideally a vendor can get involved
before that point is reached. The
better conversations take place
when a client is looking to grow
but is inhibited by their systems.
“Replacing a legacy system
Funds Europe talks to Hakan Valberg about the vendor experience of moving clients from their legacy systems onto new platforms and the importance of fostering a community of users
COMMUNITY SPIRIT
political and personal resistance
to overcome, says Valberg.
“Very often when systems have
been in place for many years,
people are naturally protective
towards any change. Our role is to
convince the firm of the benefits
a change can bring to their
business and their clients.”
Advent has also developed
a client portal called Advent
Direct Community., says Valberg.
“Clients can talk to other clients,
Advent staff, register support
cases, get latest updates and
information and share knowledge
on how they use Advent’s
solutions. Clients also use the
Community to recommend
enhancements and our latest
upgrades of our main solutions in
2014 were based on the feedback
received from clients via the
Community.
“A lot of IT and ops people have
great ideas that they are happy
to share with other users. It is
amazing to see how much they
help each other. We launched
it a year ago and have 12,000
users around the globe. Client
feedback has been positive with
a lot of traffic between them
discussing topics like how to
better use the products and how
to prepare for upgrades. It’s a win
for clients and a win for Advent
as it helps us get closer to clients
and continue understanding their
requirements.”
Advent has also looked
to develop its user group
is a major investment, it can be
disruptive and it is perceived as
a risk so it is easier to make that
decision when you are operating
in a steady market and looking
to be positive in terms of your
business model or product
development.”
There is also often some
MOST FIRMS WILL LOOK TO MAKE A SERIES OF SMALL FIXES AS REQUIRED. BUT IN MANY WAYS, THAT APPROACH IS JUST CREATING ANOTHER CHALLENGE FOR THE FUTURE.
1515funds-europe.com
16 Spring 2015
SPONSORED ARTICLE
The other challenge is
migrating the data from the
old systems to the new. This is
much more of a problem when
the former is a first generation
legacy system that is 20 years or
more old and deeply embedded
in the firm’s infrastructure.
However, while this presents
more of a technical challenge
for vendors, there are some
advantages, says Valberg. “When
the system is that old, the users
are much more motivated to
change to a new system.”
LEAP OF FAITHBy contrast, when they are
replacing a second or third
generation legacy system
supplied by a competing
vendor, there is generally more
reticence from the client about
the replacement. “Maybe that
legacy system is no longer
supported. Or maybe the client
is no longer happy with it but
that can lead to a nervousness
that is difficult to overcome as
the new vendor. They have failed
once and they do not want to
fail again, even if it was the fault
of the previous vendor. So the
negotiations tend to be longer
and the requirements more
detailed. But once they take a
leap of faith, our goal is to repay
that commitment by showing the
client how important they are
to us and develop a long term
relationship with them. We aim to
be a business partner rather just
a technology supplier.”
In the recent survey carried
out by Funds Europe into the
presence of legacy systems
within the funds management
industry, one additional comment
from a respondent stood out.
“If a client has a legacy system
it is the job of the provider to
adapt to that system and not to
change it.” The implication is
that too often asset managers are
forced into moving away from
their legacy systems because of
the incompatibility issues of the
vendor and not any processing or
performance issues for the client.
Valberg says he is empathetic.
“There is often a reluctance
among some managers to think
about best practice and the use
of only the latest versions of
technology. But there is another
side to new technology that
reminds me of the Henry Ford
quote – ‘you can have any colour
as long as it is black’. Our job as
a vendor is to make them in as
many as colours as feasible.
“Best practice can sometimes
be a dangerous phrase. Every
asset manager has different
business models and objectives
and works in different asset
classes and in different markets.
So there has to be some
flexibility in the technology
and we have to learn from our
clients.”
Once again, Advent’s user
groups and annual client
conference are integral to this
aim, says Valberg. Not only does
it provide mutual benefits in
terms of addressing industry
issues like regulatory reporting,
cyber security, cloud computing,
it also prevents clients slipping
into the situations where legacy
issues arise. “The users get to
learn more about the technology
and the roadmaps for future
development, while we get the
benefit of shared research and
development and peer advice.
It is a good way to keep up with
innovation and to prevent the
legacy issues of the past arising
in the future.”
community by holding a series
of events based on industry
segments – for example, a fund
administration forum in Dublin
that includes asset managers,
fund administrators and
distributors. The events continue
to grow and have a wide range of
people from the clients attending
beyond IT and operations, more
and more business director level
and C level are visitors.
More than 50% of Advent’s
projects are replacing first
or second generation legacy
systems, says Valberg. “Through
that experience we have
developed some best practice
guidelines and refined our
methodology. But there are some
challenges. Firms might try and
replicate the way they built their
old system when implementing
the new system but that doesn’t
always work.”
This tactic is born of the
familiarity and comfort that
users have derived from their
technology, says Valberg. “They
have used it for so long because
they know how it works.We have
two new releases every year that
we want our clients to use so
making the technology easy to
use is vital.”
As an example, Valberg points
to the fact that no one takes
lessons on how to use an iPhone.
And if an app doesn’t make sense
to a user within the first few
minutes of use, it will be killed
and they will move onto the next
one. So if fund management
platforms can aspire to that same
level of intuitive, ease of use,
then maybe legacy will not be a
problem to the same extent as it
has been in the past, says Valberg.
“We realise that in many cases
legacy systems will still exist, but
we are striving to deliver new
solutions that are so intuitive it
will make migrations much easier
than in the past decade, this is the
main reason firms are afraid to
make the jump.”
WE REALISE THAT LEGACY SYSTEMS WILL STILL EXIST, BUT WE ARE STRIVING TO DELIVER NEW SOLUTIONS THAT ARE SO INTUITIVE IT WILL MAKE MIGRATIONS MUCH EASIER THAN IN THE PAST DECADE.
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MEXICAN PENSION FUNDS LOOK INTERNATIONALLY
Spring 201518
ROUNDTABLE
19 funds-europe.com
Ian Barringer
Head of IT, F&C Investments
Catherine Doherty
Chief executive, Investit
Martin Engdal
Market strategist, Advent
Rakesh Vengayil
COO APAC and Emerging
Markets, BNP Patibas
Investment Partners
Steve Young
Chief executive, Citisoft
19funds-europe.com
Ian BarringerIan Barringer
Head of IT, F&C Investments
Catherine DohertyCatherine Doherty
Chief executive, Investit
Martin EngdalMartin Engdal
Market strategist, Advent
Rakesh VengayilRakesh Vengayil
COO APAC and Emerging
Markets, BNP Patibas
Investment Partners
Steve YoungSteve Young
Chief executive, Citisoft
PHOTOGRAPHER: Paul Cochrane
THE PANEL
Funds Europe: What is your
definition of a legacy system?
Is it purely based on age, or
that in-house, one-off aspect?
Or is it simply an older version
of the current system?
Steve Young, Citisoft: The age of
the system is clearly an indication
of its level of legacy. An important
factor is how bespoke it is.
But there are other indications
that people should look for –
something that’s not been sold
in the market or doesn’t have a
clear release pattern or any kind
of user group or community.
Funds Europe: Might some
firms not be aware that they
have a legacy system?
Young: Absolutely. Vendors
are sometimes quite strong at
clouding the level of legacy and
independence and any influence
that it may have, so they will often
position and talk about it as if
it’s a single product that’s shared
across a number of clients, but
the reality is that it’s heavily
bespoke to an individual client.
The user community need to test
that and talk to other users of the
system and really find out the
commonality of the application
across the user base.
Martin Engdal, Advent: There’s
no one definition, but I guess
there’s a checklist. Even standard
applications can be legacy. If you
don’t really have a roadmap to a
product, then I say it should be
characterised as a legacy system.
If you’re only doing maintenance
and you’re not really spending
R&D money on that platform, it’s
legacy. Is this platform future-
proof? Can this support where we
want to take our business? If you
answer “no” to that, often it is a
sign that this is a legacy system.
Unfortunately, we’re moving into
a world where becoming legacy
doesn’t take ages. It can be within
a year or two.
Rakesh Vengayil, BNP Paribas
Investment Partners: I would
Our panel discusses how to identify legacy systems, the challenge that businesses face when it’s time to replace them and the changing nature of asset managers’ IT departments. Chaired by Nicholas Pratt
GET WITH THE PROGRAM
UNFORTUNATELY WE ARE MOVING INTO A WORLD WHERE BECOMING ‘LEGACY’ DOES NOT TAKE AGES. IT CAN BE WITHIN A YEAR OR TWO.
Martin Engdal, Advent
20
its point in the legacy curve.
Vengayil: In the fund
management industry, operations
are divided into three key
segments – front, middle and
back office – and they are
increasingly outsourced or
offshored, but at the same
time getting highly integrated.
Therefore it’s really important
that everything works in tandem,
even if you are not necessarily
responsible for maintaining all
these three components. If one
of them is moving faster than the
others in terms of upgrades, then
it raises a compatibility issue and
forces you to examine the level
of potential legacy in the other
components.
Young: My strong suspicion is
the age of some systems being
legacy is shortening, because
we’re moving to the digital age
and people want to become more
data-centric. So, having legacy
systems as core components of
the architecture is increasingly
problematic and that is putting
more pressure on older systems.
Barringer: The rate of change of
front-office systems is definitely
increasing; in turn, this is
of time by which a system
becomes legacy changed?
Doherty: That definition can be
triggered by all sorts of things
like a major integration, but
other systems can hang around
for ages because there is not a
business case for replacing it,
even though it is becoming more
and more expensive to run. From
a departmental view, things may
look OK. They may say that they
are using ‘X’ system but when
you look more closely, there are
Excel programmes on the outside
propping things up.
Barringer: It is about
extensibility. If a system cannot
be extended, you end up with a
patchwork of additional solutions
to cater for new functionality –
another asset class, for example.
Young: If you look at the number
of stretches required around a
system, that’s a good indication of
ROUNDTABLE
Spring 2015
not define it by the age of a
system. As long as the system
is current, relevant, scalable,
sustainable and compatible with
the new technologies, it cannot
be classified as a legacy system.
Moreover, it also depends on
the context of the operating
model, as we operate on both
a global and local operating
model. From a global context,
we may have a piece of software
which is currently in frequent
use because of its flexibility and
agility but, within the front-to-
back connectivity of a global
system, it is not compatible
with the upgrades that are
happening. And from a local
context, there are systems that
are relevant for the local usage
but not compatible with our
global platforms for interfaces or
information exchanges.
In some other cases, a legacy
system could be a complex,
Excel macro which plays a
critical role in the overall flow.
This would have evolved over a
period of time, which is person-
dependant software and not
maintainable in an industrial way.
Ian Barringer, F&C
Investments: The big issue is
a lack of support, whether it’s
a vendor system or internally
built. Can it be developed or
extended? Is it based on a dying
language or a platform that is out
of support? Plenty of software
out there still relies on Windows
2003.
Catherine Doherty, Investit:
A legacy system is like a second-
hand car. It’s the point at which
repairs become uneconomic.
It becomes too difficult to change
bits of the system and that
pushes you into a huge
replacement project.
Funds Europe: Has the
definition of a legacy system
changed or has the length
A SYSTEM CAN HANG AROUND FOR AGES BECAUSE THERE IS NO BUSINESS CASE FOR REPLACING IT, EVEN THOUGH IT IS BECOMING MORE AND MORE EXPENSIVE TO RUN.
Catherine Doherty, Investit
funds-europe.com 21
Funds Europe: According to the
survey results, 50% of firms
said they used legacy systems
slightly, 30% said they used
them a lot, and 20% not at all.
Is that a fair reflection of the
industry?
Barringer: It depends on how
you define ‘use’. If one of your
primary systems is legacy, then
saying you only use it lightly
because all your other systems
are current is a bit disingenuous.
Young: A lot of people don’t
want to admit they’re on ageing
platforms, so I suspect the results
are understated.
Doherty: If you said to people:
“How many of your systems are
constraining your flexibility
because you’re finding it too
expensive to extend them?” or
“How many of those operations
people are there because
they’re making up for systems
shortfalls?” you’d get a different
answer.
Young: It’s also where you find
out who truly understands
the costs of running a legacy
system. They’ll generally say
they’re cheaper, which is in my
experience complete nonsense.
dragging other systems with
them. However, they are unable
to cope, which makes them
inherently legacy. If they were
standalone they would be fine,
but the tight coupling of the many
systems in a financial architecture
means they have to keep track of
the changes.
Vengayil: The ideal scenario
would be having a master/
slave architecture, but that’s not
often the case because there are
different external organisations
involved in your front-to-back
chain. They are changing the
components, or responding
to other external needs, so
it would not fit into that kind
of architecture. That’s where
sometimes we see the mismatch
arising.
Doherty: If you have an open
architecture, you can easily pull
bits of data out and you can plug
in a new risk system in the front
office. Whereas if the system
insists on keeping its data to
itself, it becomes a burden much
earlier.
Engdal: A lot of the innovations
have been in the front office
but not so much in the middle
and back office. We see some
organisations investing heavily
in front-end, client-facing tools
but neglecting the back end.
This might help them in the short
term but in the longer term it
tends to be an issue, especially
for some of these larger, tier-one
organisations. If the core engine
isn’t working and future-proofed,
you will eventually end up with
business constraints and a costly
platform.
Vengayil: I absolutely agree.
We do see this in local markets
as well, because in some of
the local markets the middle
and back-office technology
has to be pretty much aligned
with the local market practices,
whereas the fund managers
tend to use very sophisticated
front-end systems because
they are globally available,
and when you try to integrate
that with your back office, it
becomes a big challenge. We
have experience in countries like
Indonesia where the front office
is extremely sophisticated, multi-
currency, multiple asset class,
but the back end has limitations
where it cannot respond to the
sophistication you’re bringing in
the front end... One cannot easily
change the local set-up, so you
have to be in line with what the
market is doing.
Young: Legacy systems are far
more prevalent in cost centres.
People invest far more where
they can generate revenue and
they worry far less in areas which
are seen as cost centres. But I
think this approach is somewhat
naïve, because you’re only as
strong as your weakest point.
THE MIDDLE OFFICE IS WHERE EVERYTHING IS DUMPED, BECAUSE NOBODY KNOWS HOW TO GLUE THE OTHER TWO PARTS TOGETHER.
Ian Barringer, F&C Investments
-
22
of this rationalisation.
Young: The market is quite
fragmented. In the UK and
Europe, regulation’s still the
number-one concern. In the US,
they’re much more strategic and
the big and middle-sized houses
have got a much more modern
infrastructure that is built for the
future. That is the challenge for
Europe, because there have been
a lot of tactical, regulatory-led
projects but firms haven’t really
addressed the issues around
legacy systems and they are
slipping further behind other
parts of the world.
Barringer: The drivers for
technology have always been
in the front office but more so at
the moment, particularly in sales
and marketing. However, I think
there is an opportunity. With a
number of operating systems
and platforms facing retirement,
there is a focus on the back office.
People have realised we should
start doing something and big
replacement projects are being
initiated. Working out the total
cost is obviously still a challenge.
Funds Europe: Is there board-
level involvement in these
projects or are they confined
to IT?
Barringer: There is board-level
involvement. One of the tools
I’ve been using to provide some
transparency is roadmaps that
highlight pre-emptive milestones
– where support begins to fall
off, the stage where they are not
legacy yet but will be in two or
three years’ time. Funding of
these projects needs to occur at
that point, not once they have hit
the legacy threshold.
Doherty: The concept of cost
is changing. It used to be
solely about the cost of IT but
increasingly clients are talking
more inclined to invest in their
systems. There’s also a feeling
that this is a transformational time
in investment management. There
are new market opportunities and
people want to position their firm
as being more customer-friendly
and lower cost.
Vengayil: For the last few
years the focus has been on
rationalising the cost but now
there is a clear realisation that
what we are doing is sustainable
in savings and efficiency. We
handle a wide variety of front-
office tools in several asset
classes and that creates more
situations for legacy systems.
Sometimes you have a star
fund manager who is used to
a certain tool and has built in
some of his own algorithms.
From a technology perspective
it may have already become
obsolete, but from a functionality
and emotional attachment
perspective, you cannot take that
away. But in the last few years
we could drive those kinds of
changes because of the focus
on cost, people realised that
they could not afford the luxury
of running multiple platforms
and systems. In our case we by
and large have moved on to a
single, multi-asset class portfolio
management system and we
have eliminated a lot of tailor-
made stuff to bring them all into a
common platform.
Funds Europe: How do
you manage the economic
challenge of replacing legacy
systems with new technology?
Vengayil: In a lot of firms, the
new innovations and upgrades
are self-funded due to budget
limitations. That forces the
business to find efficiency
elsewhere in the chain and use
it in a place where one thinks it
is relevant. So that automatically
drives some
ROUNDTABLE
Spring 2015
They’re not looking at the total
cost of ownership, they’re looking
at the vendor spend, and the
vendor spend is incredibly low,
but the total cost of ownership
is usually vastly understated. To
create a business case you really
have to understand the total
cost of ownership, but not many
are willing to do that. Building a
business case is actually quite
easy, if you spend time and effort
putting it together, but you’ve got
to get out of denial first.
Barringer: This is very much
an issue I am tackling now. The
problem is primarily the bespoke
solutions; the glue that people put
between the back and the front,
the customisations that change
the system to fit the business
model. That is where there is
ingrained intellectual property.
Referring to a previous point, it
is the middle piece – the middle
office. That is where everything
is dumped, because nobody
knows how to glue the two parts
of business together.
Young: We are on the cusp of
more changes in the industry
than we’ve seen for a long, long
time. The ability to change and
acknowledge that you have
legacy systems is going to be
increasingly critical. It’s probably
been less of an issue over the
last decade, but it’s going to
be increasingly a sharper and
sharper issue for businesses to
address. The smart businesses
are looking at that. People in
denial are going to suffer badly,
Doherty: The regulatory
reporting thing has been very
interesting because it requires
you to bring data together from
all the way across the enterprise,
and that really brings home to
you how you’ve patched things
together. We’ve had some very
good market conditions for the
last few years, so people are
funds-europe.com 23
are seeing lengthier processes
between buyer and seller, and
sometimes people going back to
the drawing board and redrafting
their requirements. We have seen
it all over Europe. People are
afraid to take the wrong decision
because things are moving so fast
– this is totally understandable
and something we appreciate as
a vendor. But in the US, there has
been a move to cloud solutions.
Adoption is slower in Europe but,
if we were to do this roundtable
in five years’ time, there will be a
larger proportion using cloud-
based solutions where you pay
as you go, based on the number
of funds or portfolios you have on
this platform. We are also seeing
that the lines between us as a
vendor and our client are not
as sharp anymore, because we
sometimes find ourselves actually
‘competing’ with our clients when
it comes to combined technology
and outsourcing propositions.
Young: Firms have got a much
better, clearer idea of where they
compete with each other and in
the large parts of their operation
that are not competitive, they’re
much more prepared to take a
standard, off-the-shelf solution
or to outsource. Large parts of
about the cost of the product.
They are thinking in much more
holistic terms about, can we run
this product at 30 basis points
that we used to run at 80?
We have also started to build
models that look at the impact of
operations on fund performance.
You get drag effects like running
too much cash in the portfolio
but you also get the number of
fund managers building up –
people who are running little
spreadsheets on the side – and
the proportion of fund managers
to AuM is proving not to be
scalable. A lot of firms are now
thinking about the scalability of
the front office as well as the back
office and it all comes back to a
good platform where managers
can run portfolios side by side
and replicate them fluently and
spend their time having good
investment ideas – not trying to
run the platform from the front
office.
Vengayil: The two big costs for
asset managers are staff and
technology and a big percentage
of the latter is getting earmarked
towards regulatory developments
and keeping the lights on.
That leaves very little for new
innovations and development.
That’s where a lot more
pressure is coming back to
the IT or business to self-fund
the new projects and get some
sustainable technology which
you can redeploy into developing
some of these things. Earlier IT
projects were seen in isolation
but now they are seen as part of a
more holistic business process in
terms of keeping your technology
costs as variable as your revenue.
Young: As we see the rise in
passive management, people
are looking much more to
industrialise their process
but there are a lot of legacy
systems that are actually quite
good at processing. And if it is a
rudimentary investment process,
it can hide the problem.
The other issue around legacy
systems is RoI. The longer you’ve
had that system and the more
deeply embedded it is, the
longer and more expensive is the
programme to change it. So in
RoI terms it could take years, not
months. And your operating costs
will rise sharply until that system
is replaced. The longer they leave
it, the higher it costs, so they have
to find a way to generate that cost
in the short term. A lot of people
just keep putting it off.
Funds Europe: From a vendor
perspective, how do you get
over the notion that the bigger
the project is, the more it’s
going to cost and the longer it
will take to get that return?
Engdal: The RoI question seems
to be popping up all over the
place, which means that we
SOMETIMES YOU HAVE A STAR FUND MANAGER WHO IS USED TO A CERTAIN TOOL AND HAS BUILT IN HIS OWN ALGORITHMS. FROM A FUNCTIONALITY PERSPECTIVE, YOU CANNOT TAKE THAT AWAY.
Rakesh Vengayil, BNP Paribas Investment Partners
-
24
THE LONGER YOU’VE HAD THAT SYSTEM, THE LONGER AND MORE EXPENSIVE IS THE PROGRAMME TO CHANGE IT. IN RoI TERMS, IT COULD TAKE YEARS, NOT MONTHS.
Steve Young, Citisoft
design than cutting code and
building new systems. Now the
focus is on presentation and the
facilitation of ideas rather than
bespoke development.
Doherty: There needs to be a
director of information because
that is the company’s value,
and what a legacy system does,
actually, it separates the firm
from its information, and that’s its
crime.
Vengayil: We still do some
development in-house, but not
necessarily the core components.
That’s because we clearly
understand that’s not our core
competency; we outsource. But
given the complexity of front-to-
back models, when it comes to
interfacing and those kinds of
stuff, we try to do it ourselves.
Doherty: One of the key
developments is that IT lost
the battle for the company
website. Marketing just went
out and bought one from a
vendor. As the range of technical
competencies gets wider, there’s
this outsourcing of technical
competence. So there is still
bespoke code, but it’s not written
so unique, you have to build
your own. If you’re not unique,
you should avoid building your
own systems because of the
cost. I also think the industry’s
changing, the role and power
of IT is diminishing and the
number of people who are pure
IT heads and managers of IT
solely is diminishing. There are
some banks that don’t have IT
departments, but they have a
member of the board with IT
responsibility. That’s the way
the industry needs to go. We
are a long way from that in our
industry. Other industries are
already there... In the future,
vendors won’t just shift code
software in boxes, there will be a
service software hybrid model.
Barringer: It is about defining
technology because nowadays
the role of the IT department is
more about configuration and
ROUNDTABLE
Spring 2015
the middle and back office are
relatively commoditised, so why
have a bespoke legacy system
there, when you can share a
platform with the industry?
The problem is that there are
very few suppliers. The supplier
market’s as weak as I’ve known it
in terms of end products, so the
legacy issue is not easy for fund
managers. Ideally they want to
outsource, but there isn’t really a
shortlist of outsource providers
with a standard model. If you put
a shortlist together for let’s say a
back/middle office replacement
system, if you’ve got four or five
you’ve done very well. That’s not
a healthy situation, really.
Vengayil: The supply market
is weak because the demand
is not high enough. If you look
at our industry compared with
banking, where organisations
are addressing the second-
generation digital needs of their
clients and how they deliver it,
we are a bit more ‘old school’ and
conventional.
That could also be the reason
why this industry lives with a
whole lot of legacy systems,
because we have lived quite
comfortably doing things in a
conventional way. But one of
the reasons a lot of people are
speculating now is that there
could be a disruption where
some of these new technology
providers like Google can
capture the asset management
market by providing technology
and bringing us more
management expertise.
Funds Europe: Is there still
a place for the in-house,
bespoke, one-off design
system? Or will we not see
their like again? If so, does
that mean firms will be less
creative in their use of IT?
Young: The only reason to build
your own system is if you are
funds-europe.com 25
an easy thing to solve. The reason
people still have legacy systems
is because it is so hard to get off
them.
Engdal: My prediction would
be that you would see fewer
systems in production that are
categorised as legacy in the
future.
More firms will realise that
if they are running a legacy
platform, the chances are that
you can improve profitability and
business flexibility by moving to
a standard application. They will
likely be better off buying the
best off-the-shelf products they
can find and reap the benefits
of shared R&D investment on
maintaining their own systems.
We are seeing that to a larger
extent than we did just three, four
years ago. fe
in-house.
Engdal: I think IT is going to be
more about data. There are a
lot of firms getting a chief data
officer and I guess one of the
challenges is whether firms have
enough IT knowledge and data
knowledge at board level. You
can sometimes realise that as
you go higher in the company,
people don’t really have enough
competence and knowledge to
take decisions in some of these
more strategic investments.
Barringer: It has been the
role of IT to own the data for as
long as I have been working
in the industry. IT lay down the
pipes that data flows through,
together with the repository and
everything that processes. As the
role of IT evolves, people have
focused on particular areas of
functionality and have spun those
off into departments of their own,
maybe for survival reasons.
Doherty: Putting the ‘I’ back into
information technology.
Young: Yes, and taking the ‘T’
away.
Barringer: Very much so.
Vengayil: IT is no longer
perceived as purely back-end
function. They are very much
part of the strategic decision-
making process. There are
senior-level forums like the IT
Project Review Board where they
talk about active IT strategy in
conjunction with the business
strategy. IT is such a big part of
the firm’s investment that it has to
be combined with strategy.
Doherty: I think there has been
an important shift. IT used to
exist in isolation, and then we
all hopped up and down and
said: “We want to be involved in
decisions,” but basically what we
wanted to do was be able to say
“no” to things. The next phase
is that we want to contribute to
using IT to transform the firm.
Young: If you replace any piece
of IT, you have to consider a
number of options, including
offshoring and outsourcing, so
you’re not taking IT and replacing
it with IT. You’ve got to look much
broader. So you can’t have IT
people looking to replace IT.
There is a wider array of skills
involved and it is a much more
complex world now, which is why
the IT voice has got quieter.
The biggest problem with
legacy is actually replacing it –
working out your RoI, getting the
political support and embracing
change because you cannot swap
like for like. Everyone would
say legacy is a big issue in the
industry, but let’s not pretend it’s
26 Spring 2015
Friends Life Investments’ Luke Ransley talks about the legacy problems associated with in-house installations and discusses whether the trend towards outsourcing will prevent similar issues arising in the future.
BACK OFFICE TO THE FUTURE
ASSET MANAGER INTERVIEW
HISTORICALLY, LEGACY
issues have arisen in two main
areas – systems and applications.
For the former, the issues are
largely down to vendors. “The
operating systems on which the
applications are run, go through
various upgrades until the
point when they are no longer
supported by the vendor,” says
Luke Ransley, operations head at
Friends Life Investments.
“We have seen this recently
in mainstream computing with
Windows XP. So IT managers
have to work with vendors to
ensure that they are always on
upgraded versions, at least for
the core systems. If they are small
departments, you may resist the
urge to upgrade,” he says.
“This leaves you with a choice
of either upgrading to the latest
version or spending a lot of
money to move to a new system.”
The applications themselves
are also subject to new version
releases and, depending on how
embedded these applications
are, a radical change in a firm’s
business model may require new
applications and render existing
ones as legacy.
For example, the requirements
of new regulations such as EMIR
and MiFIR will require firms to
do their own reporting, rather
than relying on their brokers.
Consequently, this will force many
firms on to the latest versions of
their applications.
Similarly, there are implications
for the applications if the firm
enters a new business area (in
the sense of either asset class or
geography). “Where you have
legacy systems, the gap between
the functionality you have and the
functionality you need grows. That
puts pressure on the investment
managers,” says Ransley.
He adds that data management
is another area exposing the
legacy systems within firms.
“When you undergo significant
version upgrades, it can make it
very difficult to retrieve all of the
data that was on old systems prior
to the migration.
“One option is to do an Excel
download of the data you need
prior to the migration. But there
are also more sophisticated tools
that enable you to read the data
and act as a repository. You have
lost the application, so you need
an integration programme where
you can have pre-defined fields to
enable you to extract the data.”
A NEW STARTMaking the tough decision to
move from a legacy system to
a new platform can often be
dependent on the nature of the
system in question, says Ransley.
Core components such as the
order management, portfolio
management or investment
accounting systems are the ones
that cause most concern. However,
if it is a broker research tool, the
legacy issue is less significant,
increasing the likelihood that it
will be retained for as long as
possible.
That said, the traditional tale
of an asset manager with a
20-year-old system that has not
been updated for six years, or is
weighed down by a mismatched
array of homemade, Excel-based
add-ons, is most likely a thing of
the past, says Ransley.
“These days, IT departments
have much more of a say over
people developing their own
systems,” he notes.
In the past, fund managers
would ask to have a C++
programmer working in the
front office to do some minimal
coding. Before you knew it,
these proprietary programmes
had become critical parts of the
infrastructure, impenetrable to
all but the individuals who had
developed them.
“It is now less likely that firms
will have these systems that
cannot be supported once the
original developer has left,” says
Ransley. “IT departments have
policies about what systems
you can use and the way that
data is stored and managed –
and there is much more risk
assessment around IT governance
that make these legacy issues
much more visible.”
Issues such as these should not
arise at Ransley’s current role
at Friends Life Investment. The
internal investment management
arm of Friends Life (a firm created
WHERE YOU HAVE LEGACY SYSTEMS, THE GAP BETWEEN THE FUNCTIONALITY YOU HAVE AND THE FUNCTIONALITY YOU NEED GROWS. THAT PUTS PRESSURE ON THE INVESTMENT MANAGERS.
27 funds-europe.com
OLD SCHOOL:Sometimes small departments resist the urge to upgrade.
in 2011 from the amalgamation of
Friends Provident, the majority
of the Axa UK life insurance
business and Bupa Health
Assurance) has too short a history.
As Ransley puts it: “We are only
two years old and we outsource
everything.”
The firm employs two major
outsourcing providers. For order
management, it uses a front-office
vendor’s managed service. “They
run it all for us,” says Ransley. “We
get asked if we want to go on to
the next release, so that we are
either on the latest version or not
far off.” For investment operations,
Friends Life Investment uses the
outsourced offering of one of the
major asset-servicing providers.
SHIFTING THE BURDENOf course, opting for outsourcing
does not eradicate the legacy
problem, but transfers it instead
to the provider. The argument
goes that these providers will be
much more motivated to avoid
any such problems.
Ransley cites the issue of
downstream implications that
arise from system upgrades.
“A lot of firms will build
functionality on their current
applications. Then, when it
comes to upgrading, you have to
check that all the programmes
running off it will still work on
the new platform. If there are any
issues that arise with subsidiary
systems, then it can be enough
of an impediment to prevent
upgrading,” he says.
Most outsourcing providers will
be well aware of these potential
problems, he adds. “That is the
benefit of looking outside for
technology – the experience of
the vendors.”
Not only do the outsourcing
providers have to manage the
different demands and system
set-ups of each client, they
also have to aim for as much
standardisation as possible
and try to ensure that different
systems are able to communicate
with each other.
This is something that has
been highlighted by regulators
as well. For instance, the ‘Dear
CEO’ letters, sent by the UK’s
Financial Services Authority
in 2012, drew attention to the
operational risk that could result
from asset managers’ outsourcing
relationships if there was no
contingency plan in place to
enable them to switch from one
provider to another.
To allay these fears, it is
essential to ensure more standard
interfaces and compatibility
between the various third-party
systems employed by outsourcing
providers. Moreover, there has
to be full transparency for their
asset manager customers.
Fortunately, most vendors are
beginning to organise themselves
to be more transparent, says
Ransley. “With our providers, we
get told what version we are on
and whether we want to go on to
the next version. We get the same
level of transparency that we
would expect if we were running
these systems in-house.” fe
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Is your current system holding you back? Are you ready for regulatory changes?
Read our seven sure signs that you have outgrown your portfolio management system.
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