A Kia Forte is a car. So is a Tesla Model S. Both have four wheels and a cupholder and will get you to the grocery store just fine. Pop the hood, however, and the differences are vast.
Sadly, it’s not that easy to pop the hood on investment management solutions, but the differences between systems are equally stark. Modern microservice-based platforms are newer on the scene but poised to deliver tremendous value, tearing down walls that have been gathering moss for decades.
As an asset manager, the question is, how do you spot the difference and parse the technology gobbledygook and sales buzzwords to choose a solution that won’t depreciate as soon as you’ve inked the contract but deliver 100-fold value in ten years' time?
One key to parsing the tech jargon is to understand the sea-change in technology over the past few years and how this enables new solutions to deliver an ever-evolving ecosystem to meet business needs.
Traditionally, software development was dictated in large part by delivery. Deployment was time-consuming and expensive, so software was built to minimize this. Large modules, or monoliths in modern tech jargon, were deployed to servers and desktops with a few targeted APIs to connect them.
When the cloud arrived, engineers didn’t immediately change the way they built software; they just deployed these same monolithic solutions to the cloud. Only later did the potential to write software in an entirely different way dawn on a few bright folks at places like Google and Netflix.
They realized that deployment was no longer a concern in the cloud and that there was a different way to build software. Years later, enabled by modern packaging technologies such as Docker and Kubernetes, you can quite easily create solutions out of dozens, hundreds, or even thousands of small independent modules that all talk to one another through APIs, so-called microservices. It's this distributed architecture that underpins much of the modern internet.
All dandy, but just because there are two ways to build something doesn’t mean one is inherently better. Tech enthusiasts might wax on about the advantages of a new approach to an old problem, but we all know some of these same enthusiasts get enamored with the shiny newness of certain technologies well beyond the business value they deliver.
The truth is that there are many great solutions on the market that weren’t built with a microservice architecture, and for most financial applications, the advantages of one approach vs. another are esoteric at best. Should you care how your accounting system was built? Probably not. Should you care about your investment management solutions: your order management system, execution management system, and the like? Absolutely.
Your OMS and EMS are technology keystones but still just one part of an overall ecosystem used by the same set of users to run your business. Risk, TCA, operations, research management, and analytics of every kind are equally important, and there’s a cost to swivel chairs and data mismatches. Historically getting these systems to talk to one another without friction is incredibly difficult.
How do microservices help with that problem? Quite simply, the distributed nature of a solution built for the cloud, not just deployed to the cloud, makes it cheaper and easier to create tight integrations across solutions and vendors.
Cost is a big reason why order management systems, in particular, have preferred to create walled gardens. Some APIs might be used internally, but often it’s just a fraction of what another vendor might need. Given how these solutions are deployed, APIs are also seldom open to the internet, lacking the authentication handshakes so crucial to security.
Combined, this makes new APIs costly to create and maintain and is why many of these solutions steer clients toward arms-length file-based integrations.
For a solution based on a distributed architecture, these costs scarcely exist. APIs are the lifeblood of such a solution as they are how it talks to itself. Letting partners in securely, while not completely trivial, is a path well-trodden and further simplified by many off-the-shelf products such as Google’s Apigee and Kong.
In other words, the incentives are very different. Given that the costs are low, these providers have every reason to tear down walls and let other vendors into their gardens if it makes clients happy and offers a competitive advantage.
If creating robust API offerings is challenging for monolithic solutions, creating a unified user experience for a solution without a web-based front end is virtually impossible. Try to imagine the Apple app store requiring a full IOS upgrade each time you try to download an app, and you’ll get some idea why.
Web front-ends have, of course, come a long way. HTML 5 opened rich content that can rival anything created for a stand-alone desktop application. But more than this, it unified the preferred means of front-end delivery across virtually every cloud vendor. Hundreds of solutions are now compatible with a single desktop application that runs just about everywhere: your browser.
Securely combining web-front-ends of your OMS, risk, research, analytics providers, and custom solutions with single-sign-on and deep interoperability is cutting-edge technology that’s finally available to the market. Can this type of integration be extended to desktop solutions? Not natively, but it’s possible by embedding web-based components into the desktop application.
Rudimentary versions of this have existed for years but have typically been fragile and offer limited interactions. Providing something closer to native-component interaction is possible but complex, requiring considerable web-technology expertise.
These new technologies for unified front-end solutions, coupled with the potential for deep API-based integrations represent a game changer for asset managers in terms of workflow efficiency and cost savings. Whereas today you need to manage each vendor separately, relying on your IT staff to stitch together workflows with duct tape and superglue, already we’re seeing the emergence of platforms offering ready-made, albeit small, solution ecosystems and easy pre-built connectors for everyone else.
We can expect these ecosystems to grow and for this to become the dominant paradigm over the next several years. As walls that stood for a generation start to crumble, the value unlocked for asset managers will be tremendous as they are able to realize cost savings, leverage workflow efficiencies, and tap further into the explosion of Fintech investment.
As the trend gains momentum, investment management vendors not yet moving down this path will find the pressure to tear down their walls difficult to resist. Not all will be well-positioned to meet the challenge.
All the more reason why if you’re in the market for a solution today, you should ask probing questions. Pop the hood and look at the underlying technology. It will matter far more than the leather upholstery and jumbo cupholders much sooner than you might think.