How is Cloud Computing Impacting the Independent Advisor Market?

Transcription

1 Reprint from July 2009 How is Cloud Computing Impacting the Independent Advisor Market? by Julien Mordecai Ask a friend what cloud computing is and you ll likely get a look of bewilderment. Enter a search in Google for cloud computing and one of the first hits you find is a Youtube.com video of technologists at a recent conference giving their differing explanations of what cloud computing actually is. In fact, defining cloud computing really depends on the observer. The term itself is certainly apropos: explaining cloud computing is like describing real clouds... it depends on the viewer and their perspective as the various shapes morph into animallike creatures, ever evolving. Generally, the cloud" is described as the combination of available Internet applications, Software as a Service (SaaS) and hosted hardware server options (Hardware as a Service, HaaS) with expand- Julien Mordecai ing interconnectivity and integration. As an example in our industry, consider an advisor who might move the entire firm s technology infrastructure to an off-site, secure, hosted server network with quad-redundancy and managed IT support. By loading all traditionally desktop software, like MS Office, server, portfolio management, CRM or any other critical software on this server, all staff can access the server from any location, reducing the number of licenses needed and completely outsourcing nearly all IT support. Couple this with using more and more Web-based applications and a firm reduces costs and can scale for much faster growth across multiple physical locations. Dusty Huxford, former CEO of Financial Computer Support Inc., summed up the value of the cloud: cloud computing will have a profound impact on start-up RIAs and small and medium sized firms. Advisors can leverage the centralized power of new platforms at a pay-as-you-go price. The playing field is being leveled. Additionally, the cloud offers advisors access to data and workflow from almost anywhere. This is not to say that larger firms will not have greater efficiencies also. They will, but for the hundreds of financial services professionals setting up new RIA firms, and the thousands of existing boutiques, the costs and scaling challenges are being reduced substantially. In the financial services industry there has been a recognized movement of firm infrastructure with the pendulum swinging from the old centralized services over to

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3 3 desktop computing and now back to what is referred to as cloud computing. Currently, data, tools and workflow can all be managed outside the physical office of the advisor, but not by necessity under one corporate entity. As an example, consider the traditional wire-house representative, working with a central infrastructure of tools and people, where most of the technology is managed in one or two operations headquarters. The systems can be well-integrated, but the offering is generally inflexible and relatively limited in scope compared to the nearly endless range of options available today to an independent advisor. The representative connects remotely to the main system infrastructure for all hosted tools, such as research, reporting, trading, and support, resulting in a dependency on the corporate platform with all eggs in one basket. Enter the independent RIA; for years now in nearly every independent advisory practice these key tools and workflow components are replicated with a network of servers and desktops loaded with locally installed applications from a number of vendors with all on-site advisory staff to run everything. The physical hub for data collection and workflow in this model is the advisor s office. This model is less efficient than a full service operation, but allows advisors greater flexibility to tailor niche services to their clients. Unfortunately, this is a much more costly model to support and requires a good deal of energy from principals. Starting a new RIA practice has been a major challenge and only extremely motivated entrepreneurs have been successful right out of the gate. Cloud computing comes with the pendulum swinging back to infrastructure and support outside of the advisor s office. Thanks to the evolution of Web-based systems and hosted server networks, technology, data and workflow can again be leveraged much more efficiently, while still affording flexibility and tailored services. This is made possible by the connectivity of the Internet and a level of integration between vendors that continues to accelerate. Brent Little of Odyssey Wealth Management provides us with an example of how cloud computing can be leveraged today. Now in his second year as an independent RIA, we have worked with Brent and his business consultant, Ginny Hudgens of to increase efficiencies and services to clients. Brent had been using an industry standard desktop portfolio management system hosted off-site. With limited staff time, some of the primary functions and integration available with his existing system had not yet been leveraged. To better take advantage of the existing tools, we moved the portfolio management system and data to our hosted server network, allowing Brent and his staff access to the system from any place with a secure Internet connection. We have also worked together with several other vendors. Projects are underway for converting a process of entering data for 401K accounts manually to leveraging aggregation technology for data imports, exporting data to RedTail Technologies (Web-based CRM application) and exporting quarterly reports to the Family Office Network document vault. These efforts are driven by Brent, but the details and execution are managed by the combined teams and technologies of these partner firms. With continued evolution, Odyssey Wealth Management will realize opportunities for greater efficiencies, growth and integration that will further enhance the services to advisory clients, such as Web portals, trade/rebalancing automation and improved reporting. This infrastructure transition has been made possible by the constant efforts of advisors and their entrepreneurial vendor partners. To see how things are changing for vendors, let s look at the market of portfolio accounting systems. For many years, there was a staple of 3-4 vendors offering reliable server/desktop based portfolio accounting systems occupying about 70-80% of the market. Most advisors would purchase the software, implement with sometimes a few bumps along the way and then keep training and managing internal staff to use these applications. With a move to cloud computing, there has been an explosion of portfolio management vendors and

4 4 outsourced workflow providers in the market. One only needs to read some back issues of Virtual Office News to find reviews of many new portfolio management solutions. Over the last six years nearly 20 new hosted/web-based platforms have emerged. Additionally, outsource providers can host traditional desktop/server applications on bunker protected hosted servers, improving workflow efficiency, security and redundancy. These vendors have better control over their own costs and can take on more of the responsibilities for the advisor infrastructure, but with better cross application integration and service. Improved internal costs result in more competitive pricing for advisors. Additionally, established technology platforms are opening their architecture, resulting in more flexibility and better partner networks. This expansion of cloud computing vendors is evident in every area of the RIA infrastructure model, such as research, CRM, financial planning software, and trading. Greater integration, more internal efficiencies and lower costs are the result. This trend has been compared to the expansion of the electricity grid, where the requirement for manufacturers to generate power internally was replaced with an unlimited amount of access to power paid for as a utility. There are some general concerns related to leveraging the cloud. Vendor or partner risk: with so many new vendors making a play in just about every space, it is a challenge to gauge the likelihood that any one of these vendors will be committed to this market over the long haul, or survive with a niche solution. Also, there are many advisory firms that choose the build option over the buy in order to maintain control and security. With complete control comes the ability to finely tune the delivery of service and to take full responsibility for the risk of privacy and security. There is also some general concern about access to the Web. If an advisor can t access his tools and they are in the cloud, how can he serve his clients? Of course, without an Internet connection there is almost no way for a professional to do much work, anyway. After discussing how cloud computing specifically impacts the independent RIA market with a number of consultants and advisors, it is clear that each advisor will have the opportunity to benefit from increased flexibility and efficiencies to be able to provide more tailored solutions for end clients. The advisor with the most to gain is one willing to continue with a cycle of due diligence committed to evolutionary change. Advisors breaking away can replicate and improve on the environment left behind with a terrific choice of options that can all be switched on in days, paid for on a monthly basis and can scale as fast as the advisor wants to grow. An existing firm can replicate its hardware infrastructure and move all applications to a secure super-redundant server bunker in a matter of weeks, and free staff to work from anywhere, while integrating further with Web-based technologies. Growing concerns can keep the systems they have invested so much in, while adding custom-built solutions and integrating partner vendors. With cloud computing leveraged, all of the incredibly diverse businesses in the independent advisor market can continue to grow with even more efficiency and competitive solutions for their clients. * * * AllBackoffice Consulting (ABC) sets a new standard for commitment to service in the portfolio accounting and reporting industry. With the independent RIA as our business model, AllBackoffice Consulting strives to deliver premium service like you offer to your clients. Founded by veteran RIA consultants, Julien Mordecai and Lisa Welborn, our core offering provides a traditional PortfolioCenter outsourcing solution, hosted or dial-in support, along with added back office technology guidance. Included with our outsourced services is a proactively managed, comprehensive back-office technology assessment and ongoing project plan designed to live and evolve with your practice.

5 5 Additional services include 3 rd party application hosting, custom report development, custom programming and technology consulting. ABC s fees are flexible to facilitate a trusted consultant partnership with your practice. For more information: