Why Wealth Managers Should Take a Hybrid Approach

By Marc Trousdale, CMO and EVP at InvestCloud

Buy or build your technology is a long-standing debate in financial services and wealth management. And for much of that time, it was still largely a debate worth having pros and cons on both sides. For example, historically it was difficult to achieve differentiation and control with purchased solutions. Today, however, the right technology partner can provide wealth managers with scale, differentiation, and control, without the inefficiencies, risks, and costs of building in-house. A modular approach is key to enabling wealth managers to get exactly what they want, where they want it, and then use technology as a differentiator.

Selecting the right technology partner makes this possible. And commercial realities are driving much of the industry to realize that building is no longer necessary or advisable. The debate is therefore heading towards a clear consensus in favor of the purchase. Nevertheless, some industry players are still resisting due to historically poor experiences.

Cultural resistance to change

A lack of knowledge translates into fear of losing control, especially among large wealth managers. Much of this is down to how technology has traditionally been delivered. It was monolithic with big chunks that ended up being clunky, inflexible, and unable to offer differentiation. As a result, there has not been a sufficient degree of control over the procuring organization which rightly wants to “own the last mile” and deliver something that stands out from the competition.

The feeling that the problem is insurmountable also adds to the resistance. In the past, legacy technology that relied on hard-coding meant that technology transformation was expensive and risky. With these legacy technologies, it’s been far too easy for tech projects to take on a life of their own. Many failed to meet the initial imperative that drove the investment decision, and even more were rejected before being delivered.

Sometimes tech teams can feel like turkeys voting for Christmas when it comes to advocating buy over build because they feel their jobs are on the line. However, a healthier way to look at this is that they can be part of the broader digital transformation value chain, working in close partnership with the technology provider to design and engineer the future state. They also play a crucial role in integrating new solutions into the internal technology environment. Not to mention that by focusing on slow, inefficient application development through hard coding, these teams can focus on higher and better uses of their time, like digital strategy.

The real benefits of ROI

Real-life imperatives, including the need to improve business processes and functions and achieve measurable return on investment from technology, will drive change. Onboarding is the obvious example of a process that could be significantly improved and provide a better customer experience and therefore better customer growth. Promoting large-scale growth with operational efficiency – that’s real return on investment.

It’s essential to have realistic expectations – a lot of time and effort goes into managing processes, but projects don’t magically materialize. It is crucial to lead the design and only then to build and configure. And design is at its best when it’s steeped in behavioral science. Most technology partners lack this skill, so wealth managers need to be selective.

The Importance of Data and Behavioral Science

Data is the fuel of the wealth management industry. If you can’t access, integrate and trust the data, all the most insightful analysis and graphs mean nothing. Data mastery can only be achieved with a digital warehouse that is backed by a mature and comprehensive financial data model. Bundling digital financial applications with robust data solutions is fundamental when dealing with small wealth managers, many of whom have no data management capabilities. With large wealth managers, the challenges are different but equally critical. Large companies tend to have a lot more technology debt due to many point solution systems that don’t integrate. This means that customer information and market data are everywhere and manual processes abound.

Along with the need for robust data management to enable ROI, vendors must also demonstrate a history and success of modularity – in the sense of not being monolithic with their technology but also in their ability to scale over time. pace and working with internal teams. The more customers look at actual results, the more informed decisions they can make no matter what they choose to do. The most effective way to do this is through behavioral science, both game theory (aka commitment science) and decision theory.

The world is moving too fast to wait for slow and expensive projects. This can be achieved through tools such as InvestCloud’s AI code generator called iProgram: a no-code tool that allows a designer to do the work of 50 traditional programmers and deliver projects in 3-6 months, and not in years. However, it’s not just about speed – it’s imperative to get the right results for our customers, including value delivery and exchange. It is important to find out what the client is trying to accomplish. A functional design study is implemented to structure this process, clearly define the main objectives and design the right results for the customers.

Hybrid solutions are the answer

A mix of subscribing to cloud applications (“purchasing”) and maintaining legacy systems, some built in-house, should be the way forward, as companies shouldn’t have to throw away everything they have to bring new solutions. But to make sound buying decisions, wealth managers need a solid understanding of what’s really out there so they can forge the right partnerships. It is ultimately up to the wealth manager to determine this. However, it’s also helpful that vendors can make it easy to choose and provide as much or as little of their stack as a business needs and not be priceless about it. You can’t escape having to steer your own ship, but businesses need help, and vendors can and should show leadership – especially when it comes to helping with data, from how it should be stored and used to how it can be effectively shared across the wealth manager’s technology ecosystem.

The business and economic pressures we are all facing today make differentiation and risk reduction a priority. It is still too often tempting for wealth managers to think that in-house builds reduce risk (when they are often riskier) and that differentiation is impossible from third-party technology partners. If these are the attitudes that drive action, wealth managers will end up with poor quality.

Given that end-customer expectations are so high, there is a huge opportunity for vendors to scale up – and for wealth managers to rethink how they work with technology partners to focus on value and differentiation to that they can deliver a fantastic end result to their clients. The right partnership – in a knowledgeable, value-driven way – will drive extra excitement to buy versus build.

Dolores W. Simon