Portfolio accounting systems are at the heart of middle- and back-office technology. When the tech no longer serves its intended purpose, the operational core is disrupted, causing widespread reverberations.
Wealth and asset management firms operate in a dynamic state.
That means business needs will change, new technology emerges, and existing operations and tech setups may fall behind.
And newfound system limitations seem small at first… a few data inaccuracies here, an integration issue there…
Gradually, the issues compound, to the point they can no longer be dismissed as minor workarounds.
Eventually ,there will be a tipping point. The warning signs will emerge it’s time to consider a change.
In the past, the portfolio accounting engine might’ve worked well, taking in data from relevant custodians and systems, then producing the desired client and internal reports.
But legacy tech may struggle to accommodate SEC regulations or ESG reporting, not to mention newer asset classes like crypto or private equity, plus multi-currency reporting and large transaction volumes.
With increased complexity, the PA system also isn’t compatible with new data formats and sources, and the desired robust functionality of the platform just isn’t there. Scalability won’t be possible anymore.
If the obstacles, delays, and bottlenecks start eating into time and money spent, it’s time to make changes.
With certain platforms, they become too pricey to maintain. Sometimes there are too many features going unused that were never needed, but the only way to access the ones you wanted was by purchasing what’s off the shelf.
If not for the regular annual costs, then it’s the costs associated with maintenance and upgrades.
According to SnapLogic, legacy tech upgrades cost businesses with 250+ employees on average $2.9 million in 2023.
Related, consider comparing the Total Cost of Ownership (TCO) of legacy systems vs. modern cloud-based ones.
It’s not just the direct cost aspect. Too many piecemeal, patchwork fixes and complicated upgrades/implementations will push firms deeper into technical debt as well.
As legacy portfolio accounting systems age, they have trouble integrating with other platforms (CRM, risk analytics, tax software, etc.)
Such poor integration creates downstream problems in data silos, manual workflows — logging in to multiple platforms to extract and enter data. This also leads to increased risk for errors, wasted time and lastly wasted money.
Along those lines, the SnapLogic survey found more that more than 3 in 5 IT leaders said their company’s data stack is experiencing a moderate to severe negative impact due to technical debt, including outdated code.
Clients expect timely and accurate reporting, as well as digital platforms to access their investment and portfolio information instantly.
If the legacy portfolio accounting systems are contributing to more frequent delays and inaccurate reports, again it’s time to look at new systems.
When it hurts the client experience enough, clients will leave.
In fact, 25% of investors globally would considering leaving wealth managers who don't modernize and adopt new technologies.
A poor UX, with a difficult interface to use and understand, will result in less productivity, more mistakes, and higher costs to train people to use the platform.
And if the client finds the interface is inflexible and too hard to navigate, they’ll abandon it altogether.
In contrast, many of the newer platforms have more intuitive interfaces with customizable drag-and-drop features, and AI-driven automation and streamlined components.
With older software, there will come a day when the provider no longer supports service.
Sunsetting the systems means reduced customer service, including slower responsive and less help with patchwork updates.
Now the system is really at risk of being a liability, including for compliance.
Older systems, especially those sunsetted, are vulnerable. Such old portfolio accounting systems may no longer receive the security updates that newer ones automatically get.
Additionally, legacy tech may lack encryption or multi-factor authentication, leaving the systems and the company at large vulnerable to breaches.
The SEC has made it clear they expect industry participants to have cybersecurity protections in place, and that should be a wake-up call to firms that have begun to question their own platform’s security.
Maybe it’s 1, 5, or (yikes!) all 9…
Even within each sign, levels of severity may vary, but keep an eye out if the issues to start accumulate.
But when security and compliance are called into question, and when threats to client experience are a real thing, those are major red flags. 🚩🚩🚩
Internal inefficiencies and (increasing) costs are also noteworthy, as less effective and less budget-friendly solutions also hurt the client experience.
At Empaxis, we specialize in helping wealth and asset managers break free of legacy tech, moving them on to modern cloud platforms.
We know the challenges of being entrenched in and entrapped by legacy portfolio management systems, and we have two decades of proven experience getting buy-side investment organizations out of these difficult situations, handling the entire process from data migrations to platform implementations, and to parallel systems and QA testing.
This also includes ongoing managed services, as we have been providing portfolio accounting MBO services since our founding in 2004.
Portfolio accounting systems are the engine that makes middle and back offices run.
But when the system is no longer fit for purpose, your operation won’t run like it should.
From compliance issues to cybersecurity threats, from productivity to losses to bad user experiences, and from high costs to lack of support, there are many ways such legacy can bring down an entire operation.
By paying attention to the 7 signs it’s time to change, wealth and asset managers can move their organization.
Sometimes it’s easier said than done making that switch, and Empaxis stands as a ready partner to not only help, but lead this transformation.
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