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What price freedom? Asset managers, vendors and autonomy

December 17, 2019

In these days where one of the main subjects for debate is the theme of ‘taking back control’, a question that recently struck me is just what should be the level of dependence between a software vendor and an asset management firm?

Should the goal for every buy-side firm be to take control of any software deployment from the outset, with the objective of being entirely self-sufficient in as short a period of time as possible? Or should the vendor continue to retain a high degree of involvement, since they have the deepest level of expertise in the implementation and operation of their own software and, inevitably, the client will always have a dependency on the vendor?

My answer to this would be, quite simply: ‘Know thyself.’ An asset management business should have a clear understanding of its capabilities and the IT resource it has at hand with which to deploy and operate any off-the-shelf software solution. It is also not unreasonable for a buy-side firm to expect an experienced vendor to be capable of engagement at a level that suits the firm’s willingness or desire – whether tending towards or away from greater degrees of self-sufficiency.

In our case, we deal with Reporting team heads and Operations staff in buy-side firms. Our experience has been that whilst an asset manager’s dependence on a reporting vendor may give the vendor some billing opportunities and creates a beneficial binding for the vendor, it works against the basic principles of a scalable business – something that is highly desirable for any vendor.

Looking at it from the asset manager’s perspective, whilst a high degree of collaboration may at first suggest that there are shortfalls in self-help and risks in the relationship, this is the very factor that helps firms achieve the much sought after flexibility in throughput and efficiency, whilst remaining adaptable to both internal and external clients. It helps promote the ideal of deploying valuable, skilled business resource to tasks and projects that are at, or closer to, the core of the business.

To explain further, very often the stated aim of Marketing or Client reporting departments that are looking to automate processes or replace an existing automated system is that they need to ‘free up their team members to add value’. The obvious implication of this is that the current process is diverting their skilled team members away from their core competencies (and what they are, in reality, employed to do).

If, during the selection and implementation of a new solution, these two departments look to entrench too much autonomy in the structure of their new relationship then they run the risk of failing to fully realise the benefits that they were initially seeking. They are essentially swapping one set of ‘value add’ constraints for another.

This dynamic also has the potential to compromise other expected gains, such as improved timeliness and risk mitigation. Necessarily, the competency of the vendor is greater than that of the client in certain areas of both BAU and BAU+ activities (for example, implementing new report types or accessing new data sources). The client will therefore always accrue greater benefits by recognising and respecting the fact that there is an optimal level of autonomy (which very often is considerably less than they may initially imagine).

Cost control, of course, will always form part of the autonomy equation. When outlining the various elements of our reporting functionality, a question that we are often posed is: ‘Will I need you to do that or will I be able to do that myself? Will you train me?’ In some cases, the driver for such an enquiry is one of cost limitation. Yet I would argue that a better perspective on the issue would be to evaluate one’s resources before considering the cost. Key questions include: ’Do we have the people or the skills to perform this activity? Are we correctly resourced – for example, do we have the necessary balance between managers and operatives?’ It’s not simply about buy-side firms having large teams of staff; it’s about having the right people to undertake the activity (bearing in mind the nature of the task and the likely volume of work).

Often, though, the reason for the ‘Can I do that myself?’ question is that the Head of Client Reporting is beginning to imagine how this software could fit into his/her life, to their benefit. They are transposing what the vendor is saying into their world. It’s a positive response and most vendors experience it regularly, partly because so much of today’s software is attractively designed and easy-to-use. It fits really well with the client’s desire to become self-reliant.

In many instances, the message that clients want to hear from their vendor is: ‘Ultimately you don’t need me, but I’m always here to support you and answer questions’. Nevertheless, the truth is that software vendors do not have to strive to make themselves indispensable; they will always be required to a degree. It’s not because the vendor is being cunning or because the client lacks the requisite competency; it is simply inevitable if one bears in mind all the other pressures that have to be borne by a Client Reporting team.

It is true that some vendors use large offshore teams as part of a managed service, so they will never wish for their client to take full control of their client reporting. The labour cost arbitrage is part of their business model and it is a reasonable strategy. The alternative solution is technology that works in such a way that there is full automation of tasks. Asset managers that prefer the latter approach would argue that the managed service model is over-reliant on human endeavours (and is therefore inherently risky).

In summary, a good vendor partner should be flexible: able and prepared to support their clients’ reporting teams whatever their priority. That includes those who need or wish to share the ‘heavy lifting’, but never overlooking those that prefer the control that comes with autonomy.

Whatever approach an asset management firm may prefer to adopt regarding the operation of its software solutions, it should always take note to ‘Know thyself’ first.

Abbey Shasore, CEO, Factbook

@FactbookCompany

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