Navigating Investment Industry Economic, Employment, and Operational Headwinds
4 Ways Firms Can Maximize Operational Efficiencies and Reduce Costs to Meet Market Challenges
TABLE OF CONTENTS
Firms are well aware of the challenges facing the industry today. After a decade of solid growth, global AUM is declining. Experts believe that higher interest rates and sluggish global economic output will linger for the next two years, making a strong rebound in industry revenues unlikely in the short term.
Moreover, investment firms today are contending with changing workplace dynamics and employment trends. Add in legacy technology that fails to keep pace with firms’ changing operations, and it is clear why firms struggle to maintain their market positions.
These ongoing economic, employment, and operational headwinds are increasingly impacting how firms operate.
Research from McKinsey posits that technology can give firms a strategic advantage and help combat the challenges they face today – but only if they’re deliberate with their investment.
Their research finds that while firms' investment in technology has been growing at around six percent yearly, much of that investment has gone to "coping with legacy technology that is increasingly expensive to maintain."
Instead, firms should use technology to pursue new efficiencies, recommends McKinsey. In the following pages, we'll dive deeper into the challenges firms face today and show how, by tapping into the resources available from your technology provider, you can:
- Build an investment ecosystem equipped to handle new business challenges and capitalize on competitive advantages
- Free up your employees’ time so they remain engaged and can focus on higher-value tasks
- Simplify and optimize your operational infrastructure
- Get more done with fewer resources
- Find more value from your investment in technology
- Adapt more quickly to market changes
Readers will come away with a new understating of how to maximize their technology vendor relationship to navigate industry headwinds, enhance operational efficiencies, and optimize costs.
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An Exploration of Trends Driving Investment Industry Changes
Let’s take a closer look at the forces driving these economic, workplace, and operational headwinds and their impact on firms.
Economic Challenges Impact Cost-to-Income Ratios
Research from Boston Consulting Group reports that for the first time since the 2008–2009 financial crisis, global AUM declined in 2022 (by roughly 15%). With higher interest rates and sluggish global economic output expected through 2025, firms are not optimistic about the chances of a strong rebound any time soon.
In this challenging economic scenario, BCG reports that wealth and asset managers are struggling to keep cost-to-income ratios (CIRs) in check.
Changing Workplace and Employee Dynamics Cause Technology Reckoning
Shifting dynamics between employees and employers – and where they work – are adding to this challenge.
Since the pandemic, employees have come to expect great flexibility in where they work. Many are asking for work-from-home or hybrid work situations, and employers – seeking to keep their key employees happy and productive – are setting up hybrid work environments.
Reduction in office space is a byproduct of this hybrid work dynamic. In its survey of over 500 business owners, hybrid work platform Robin found that 75% plan to reduce office square footage in 2024 as they look to cut costs.
With employees working from decentralized locations and less office space, firms are faced with new and difficult decisions about what technology their teams will use to stay in synch, how they will access it, and how it will be hosted.
Operational Risks Impeding Alpha
Internally, firms also face challenges that come from their legacy systems.
These legacy solutions often create slow, inefficient workflows that disconnect the front office from the rest of the operation.
Moreover, as firms are forced to add more and more third-party technology to achieve investment activities not available in their legacy systems, it creates a lack of cohesiveness that can cause errors or delays and become complicated to manage.
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Utilizing Technology and Services to Optimize Operations and Improve Cost-to-Income Ratios
As firms search for ways to navigate these headwinds, technology and other solutions from existing vendors are one option for rationalizing costs and optimizing operations in order to compete in this complicated landscape.
To realize that goal, however, you must be strategic about how you utilize your vendors’ offerings.
The first step in this process is to evaluate the current total cost of your investment technology and ensure you’re not overpaying.
"Hidden" fees can cut into your margins and diminish your return on technology spending. These fees can include costs for service, upgrades, external consultants, and going over allotted consultant hours.
Learn How to Calculate Your Total Cost of Ownership and Implement Cost-saving Strategies in this Guide
Once you understand what you are already spending on technology, you can leverage the technology and services available to you via your technology vendor to get the best return on that investment and enhance your operations.
Here’s how your firm can achieve this goal:
1. Expand Access for Less with an Investment Ecosystem Model
In recent years, the expansion of API technology has given vendors new tools for creating tighter, more cost-effective solutions that tie together workflows across more systems and partners into a seamless end-to-end experience called an investment ecosystem.
APIs can also create new and enhanced communication and collaboration channels among traders, portfolio managers, and other firm members without having to vet, onboard, and manage a host of new providers.
When faced with new challenges, tap into the existing solutions available to you through your investment technology provider’s investment ecosystem. The simplified operational framework leads to a lower TCO while enabling you to keep up with the rapidly evolving nature of the industry.
Designing Your Investment Ecosystem: Learn how to build an investment ecosystem for your firm’s unique needs.
2. Free Up Resources with a Move to the Cloud – If It’s Right for Your Firm
As firms look to free up resources, many look to the cloud. A McKinsey survey of top financial institutions revealed that more than half of respondents expect to shift at least half of their workloads to the public cloud over the next five years.
Moving your investment technology to the cloud can bring cost and operational benefits.
To start, the technology approaches characteristic of cloud offerings mean firms can often achieve faster deployment times, more streamlined operations, and increased efficiency in scaling their infrastructure as the needs of their firm change.
And, as firms strive to reduce costs, cloud-based technology is often a more cost-effective choice than traditional IT infrastructure. Firms can repurpose space once necessary for server rooms and human resources no longer needed to maintain and upgrade systems. These savings, combined with pay-as-you-go pricing models, make cloud services a more economical option.
In addition, users can access cloud-based systems from anywhere via an internet connection; a critical benefit as more and more firms adopt hybrid and remote workplaces to keep their top employees engaged.
Still, many firms are left wondering: Is now the time to move my investment technology to the cloud?
While the cloud brings many benefits, it may not be suitable for all firms. Never feel pressured to choose a deployment option that doesn’t meet the needs of your firm. Take the time to speak with your technology vendor about the pros and cons of each option and how they will support you in that transition, then select the one that will meet the demands of your organization: fully hosted, on-premises, or managed applications.
3. Maximize Employee Time, Effort, and Satisfaction with Automation
To operate more efficiently, many trading desks are turning to trade automation.
Advanced trading tools like algo wheels and rules-based order routing give trading desks the flexibility to autoroute orders deemed as “low-touch” while giving traders time and opportunity to work “high-touch” orders with increased dedication and focus.
By minimizing the time spent on highly liquid, “low-touch” orders, firms can refocus their efforts on high-impact trades that leverage trader expertise and drive trading desk ROI.
Giving your traders advanced tools to see the market, make informed decisions, and execute them quickly and effectively leads to a more efficient operation. Moreover, it keeps your knowledgeable, tenured employees engaged with their work, helping you retain talent and avoid the cost and disruption of employee turnover.
Ask your technology vendor about trade automation tools you can leverage to create efficiencies that allow your human capital to focus on more impactful alpha-generating activities.
Learn three must-haves to look out for in a truly automated trading solution.
4. Improve Operations and Overhead with Outsourced Services
In their 2024 Investment Management Outlook survey, Deloitte found that 29%, 23%, and 28% of respondents plan to pursue outsourcing for front, middle, and back-office processes, respectively, over the next 12-18 months. A stark contrast to the 4%, 5%, and 5% of respondents planning to pursue building such strategies in-house.
Much of this drive to outsource comes from firms’ desires to build operational resiliency coming out of the pandemic and adapt alongside a modernizing talent model.
For many firms, that means retaining in-house only the processes that truly add value to their businesses and differentiate them from their competitors. For other tasks, these firms leverage the expertise and experience of outsourced teams from their technology partner to complete the work faster, more accurately, and at less cost.
Outsourcing these processes can improve efficiency while keeping your teams focused on high-impact tasks that make your firm stand out from the competition.
Some of the key advantages we hear buy-side firms cite in their decision to outsource include operational resilience and efficiency, cost benefits, and access to technical knowledge and expertise.
Managed services enable your firm to increase resources to complete essential, routine processes without adding headcount or onboarding additional vendors, minimizing overhead. With this type of solution, your firm can start small and scale up or down should the requirements of your business change.
By freeing up staff time to focus on higher-value projects instead of repetitive tasks, managed services drives more robust employee engagement. It also eliminates key person risks for many of your firm’s recurring responsibilities.
Your vendor’s strategic services team can act as an extension of your team, giving you highly specialized support to meet business challenges and changes, again, without needing to add headcount or onboard additional vendors.
Say your firm is navigating a new business opportunity and needs help implementing the processes to support it. Leveraging your vendor’s strategic services opens up access to resources with the specialized guidance and technical knowledge needed to best utilize existing platform capabilities and make the opportunity successful.
Strategic services can also offer expert advice on enhancing a firm’s processes and operations and maximizing the flow of information across the organization.
Managed applications let you tap into your vendor’s technical expertise to give you peace of mind about how your firm’s infrastructure is hosted and managed.
With managed applications, your vendor handles both your hosting architecture and management, including the services firms need to feel confident in their infrastructure: Testing disaster recovery and security protocols, fully replicated data, and issue resolution.
The Partner You Need to Face the Challenges of Today’s Markets with Confidence
As fluctuations in economic, operational, and employment trends continue, firms increasingly turn to technology to keep pace.
But technology alone won’t solve these mounting challenges; firms also need a trusted partner to help them navigate potential pitfalls, get the most out of their operations, and improve their TCO.
For over 35 years, SS&C has been a trusted partner for investment firms around the globe. We are committed to developing industry-leading technology, including our Eze solutions, which deliver robust functionality to our users – regardless of size.
Our service teams understand the demanding nature of your work and the urgency of issue resolution. With our signature partnership approach, every Eze user receives a personalized experience and fast, knowledgeable service from one of our 500+ globally dispersed support and service experts.
With a clear direction for the future, our technology constantly adapts and evolves as our users’ needs and challenges change, investing $110M annually in R&D across wealth and investment technologies.
Learn how our industry-leading technology and service can help you achieve your investment and operational goals today and in the future for less.
Contact us or visit our website for more information on SS&C Eze’s technology and services.