When Jude Boudreaux launched his solo practice, Upperline Financial Planning, in September, he headed for the clouds. Everything from his portfolio system to invoicing, customer relationship management (CRM) programming, to e-mail is all stored in a cloud-computing environment. There's no server, no software upgrades, no technology manager — just him, his MacBook Air and a home office.
“Running apps in the cloud allows me to run a lot leaner than I would have had to,” says the New Orleans, La.-based Boudreaux. “When I decided to go off on my own, I didn't have a ton of money. So necessity breeds invention. My whole set up now costs less than what I'd have to spend to finance a server, much less the software.”
Welcome to the cloud: A way to store and network information that independent reps are adopting, making quick use of the nimble set-up, lower overhead and what they say can be a more secure space for client data. Suddenly your office really can be anywhere, many advisors say. Reps can now mirror nearly any service larger firms had once cornered, and still maintain control of their data — and, most of all, clients.
Analysts estimate the global market for cloud computing will balloon to $241 billion by 2020, up from just $40.7 billion in 2010, according to Forrester Research's report,“Sizing The Cloud,” released in April 2011. Some big names have already settled in the cloud; financial planning software provider MoneyGuidePro, CRM provider Salesforce.com, and CRM maker Junxure is planning a move to the clouds by 2012. But the real game changer, say industry insiders, was NYSE Technologies' launch of a cloud-based trading space in June, a move which signaled that more cloud services, specifically aimed at the financial services world, were coming.
“All the major players in this industry are already working on cloud-based technology,” says Larry Ryan, Hewlett Packard's chief technologist for the financial services industry, who looks for trends that are affecting this specific market. “With NYSE's announcement a month ago, we're seeing more things in the cloud market focused to addressing the needs of specific target segments.”
The Cloud Is Secure
Basing services in the cloud is not a new phenomenon. Anyone who has a Gmail account, bought a book on Amazon or posted what they ate for breakfast on Facebook has used a cloud — albeit, a public cloud accessible by anyone, and for anyone. But clouds used by businesses — and for data they would, in the past, have wanted to control in-house — are different. These can range from a purely private cloud, open only to small numbers of users, to a hybrid, as HP refers to it, or a community cloud, which is the name NYSE Technologies prefers for its cloud. These are larger than private clouds, but still only reachable through specific channels, rather than public entryways — and usually only accessible to a paying user base.
With fewer points of entry, hybrid clouds are seen by technology experts as fairly secure. “I think 99 percent of the time reliability is better on the cloud than doing it yourself,” says Joel York, chief marketing officer and general manager of direct sales at Web services firm Xignite, who also writes about the cloud within the financial services space on his blog Chaotic-Flow.com. “You're a registered rep and not an IT person. And so in terms of reliability and capability, what you can get online is going to be better.”
Most reps still take additional security precautions before handing over client data to anyone, including a cloud-based firm. Nathan Gehring, who launched a cloud-based practice MyFirstFinancialPlanner.com in May, talked with companies, including MoneyGuidePro, about who would own the data he was storing in their cloud — them, or him. While just a small number of investors have come through the cloud side, he expects this side of his practice will grow, even hoping to transfer some of what he calls his more traditional clients at his primary practice, Conceptual Investment Advisors, in Appleton, Wis. Gehring wanted to be assured all security issues were addressed.
The due diligence he did, and says every rep should undertake, helped him feel comfortable shifting part of his practice online — and confident enough to assure clients their data wasn't at risk. “Most [firms] say it's our data and we can have it any time,” says Gehring. “But there is an issue of whether they may go out of business, and don't care anymore, and then the difficulty that brings on getting the information back. Largely it's a matter of reviewing the terms of service, and working with a long-standing, well-respected organization. If I were working with a younger provider, I would look at things a little differently.”
Not everyone is ready to jump up to the clouds. Scott Wallace, regional director for the Houston-based broker/dealer Financial Network, has been testing file hosting service Dropbox with some of his co-directors for the past eight months, using the cloud-based tool to share notes for a recent regional meeting. But moving client data up to the cloud? Not right now, he says. He's just not personally comfortable with the security — yet.
“When it comes to client data, there's no undoing it if someone hacks in and gets it,” says Wallace. “So I want to be completely sure it's encrypted and safe. I'm just not comfortable yet going that complete route now, but I do see us heading in that direction eventually.”
The Cloud Is Cheaper
Another reason for the cloud's appeal? Often, a lower price. Boudreaux says that by having a lower overhead, he can charge lower fees to clients, sometimes less than the typical fee of 1 percent of assets under management. Gehring agrees. Investors who come through the cloud-side of his firm, where clients access and share information online, are charged less than those working with his traditional firm, where he has to sit with them in person and go over documents by hand.
Gehring is even beta testing a new cloud service from an outside firm, which he says will give financial planning tools away for free — Google style. “They're turning around the payment model, giving you everything, and changing the cost structure, he says. “If the software doesn't cost me a penny, then imagine what can I deliver to a client? You get the sense we're on the edge of some potentially major changes to the way we work.”
Still, there are downsides to using smaller, less expensive alternatives. Boudreaux isn't able to select the exact services and firms he wants to work with as he focuses on keeping his margins lean. For example, Junxure, which he loves and used extensively at his last job as director of financial planning at the New Orleans-based Bellingrath Wealth Management, is more expensive and still not cloud-based. Instead, he uses CRM service BatchBook, which starts at $14.95 a month. But Boudreaux says he just works harder to use more of what he has, and barely misses the difference.
Nor does he miss having to buy and maintain servers, desktops and the staff to maintain them. That job now sits with his service providers. “They realize savings from a total cost of ownership analysis including installation to maintenance,” says NYSE Technologies' Ken Barnes, its senior vice president of global platform services. “That's where costs become really compelling.”
The Cloud Is Faster
The cloud space also makes reps more agile, say experts, giving advisors and smaller firms a way to launch programs more quickly. It also provides access to platforms and services along the domain of bigger Wall Street firms, says Xignite's York. “In a lot of ways the cloud allows them to compete with the big guys,” he says,“giving them access to tools only previously available to a large institution.”
Boudreaux agrees. At this point, he's not sure he could imagine returning to a larger firm. As an independent, he controls his clients and their data, and in the cloud he believes it's secure. From a technology standpoint he says he has everything he needs, and has even found a way to outsource his compliance requirements to the cloud as well.
“I would have done this one way or another,” he says about starting his own firm. “But it would have been a lot harder to do this a couple of years ago before these tools were out there. Now the technology is no longer the barrier to entry it used to be. This is a real problem the broker/dealers are going to face. It used to be it cost a lot of money to set all this up. But that benefit is shrinking further and further away.”