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Portfolio Management and Reporting Technology: When to Make a Change

How do you know when it is the right time to rip and replace these core pieces of your tech stack?

In the financial services industry, technology software that helps with portfolio management, reporting and billing is constantly changing, and it is imperative to understand what works for your particular sized firm and when it’s time to upgrade. A full 37% of executives responded that implementing new technologies or solutions to meet client needs was viewed as the biggest challenge to their business, according to a poll conducted by BNY Mellon’s Pershing at its 2019 Elite Advisor Summit.

Major technology transitions are a unique and often daunting process for most firms, but when you get to a certain point, it can’t be avoided. Taking a step back and having a deep conversation with your firm’s decision-makers about matching your business goals with the software that is available is a great way to get started.

What to consider when looking into making a change?

When your firm outgrows its previous service, a change needs to be made. Early on, the firm may have been looking for portfolio management software only, but as you’ve added more accounts and advisors, you may need something more robust than what you have. As the business grows and daily tasks become more complex, what was once accomplished with a spreadsheet may now need more sophisticated software. You may need additional features, like the ability to create models or use sleeves for trading, billing and reporting purposes that meet the needs of new clientele.  

At Kalos Financial, our separately managed account (SMA) offering started out as a service for a handful of advisors who wanted help picking investments for their clients. Spreadsheets were manual but did the job. The SMAs became more popular as Kalos grew, and an investment in rebalancing software was necessary to trade hundreds of accounts efficiently and accurately. As Kalos’ business model evolved into marketing, we began to offer SMAs to advisors outside of Kalos’ RIA and even more sophisticated features were needed. Creating “models of models,” using sleeves of different strategies within individual accounts and seamless trading using a FIX connection all grew in importance. We were growing and needed to professionalize the money management side of our business.

If your firm is planning for growth, it might be more efficient to invest in technology that offers more bells and whistles than you might need at that moment. Even if you won’t be using every feature when you make the purchase, it would be wise to overshoot because as your firm grows it will need additional technologies. Before you make a switch, always make sure you understand everything your current service provides. Don’t hesitate to ask your technology rep if they’ll be making certain updates or willing to add the features you need. When talking to your current technology provider, make sure you do your diligence on upgrades that are in the pipeline—especially when it comes to timing. Managers may promise a rollout for the next quarter, but someone on the development team might give a different answer. For Kalos, features that were needed to upgrade their portfolio management capabilities were promised to be available, but deadlines passed and the wait impeded Kalos’ growth. The decision was made to upgrade to a company with those features already in place.

How do you know it is time to make the change?

Each firm, depending on size, should have a different indicator as to when it is time to make a change. For example, if a small firm’s goal is to grow into a mid-sized firm, then maybe they need to look into more robust technology to accommodate the number of employees they are planning to have. The same goes for a mid-sized firm growing into a large firm. Use quantifiable metrics like AUM or number of clients to help gauge when to review technology needs.

If growth is not a driving factor, efficiency could be your reason for upgrading. If making a change helps your employees complete tasks quicker and opens up more free time to take on other responsibilities, it can boost the overall business and save you money, as spending $30,000 a year on technology may be more efficient than hiring an administrator at $60,000 a year in salary.

Another consideration is your client base. What software would be most effective and useful for them? After all, that’s who you’re serving! If the majority of your clients like to do their business in person, face-to-face, then upgrading to software that includes video chatting and screen sharing isn’t the right fit. On the contrary, younger, tech-savvy clients who don’t want to come into the office quarterly but instead prefer video calls anytime they have questions probably want and need and perhaps expect those services.

Every year, you should weigh all of the technology options available. Attend tech conferences so you can stay at the forefront of what’s new and what’s being updated. By familiarizing yourself with all options, you will have a better understanding of what’s out there, and where your current software may not be cutting it. For example, not being able to comply with the Global Investment Performance Standards (GIPS) could ultimately lead to a decision to make a change.

How do you ensure a smooth transition for your employees and advisors?

Ideally, the technology you’re transitioning to should have some sort of transition and training team that outlines its features step-by-step, so they can figuratively hold your hand throughout the entire process. You should have access to experts who can help your entire firm work through the process smoothly.

Your firm may also benefit from naming a lead point person to help organize and relay any issues or feedback between the tech provider and the firm. And having employees become subject matter experts can be beneficial because they will be able to help train employees on-site.

Portfolio management technology is forever changing, so it’s crucial you stay up-to-date on the latest news and trends. Having the right tech for your firm is vital to the business and can help attract more advisors, keep others from leaving and allow employees to do their job more efficiently.

Erik Setterlind is a senior vice president and head of Investment Management at Kalos Financial.

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