To buy or to build? Why underestimating the value of vendors may have long term effects

By Matthew Reid | 25 September 2017

The age-old debate of buy vs build passionately divides many in the asset management industry. There is, and always will be, a time and a place for both. But in today’s fast paced global market, the case for innovative and security managed investment technology solutions is becoming even more compelling. This is often the case with front office technology, including order management systems (OMS). With asset managers dealing with more data than ever before, and increasing transparency demands from investors and regulators, the time for action is now.

In a recent global survey aimed at asset management and banking firms, Adox Research found 64% of participants are looking to invest in new OMS technology over the next three years, be it adoption or replacement of current systems. Unsurprisingly, the same survey found a 19% increase in firms preferring vendor-based deployment in the future, moving away from in-house management. Lower cost, fewer resource constraints, less time to market, security and vendor expertise all combine to make buying front office technology solutions the natural choice.

Buying “off the shelf” can prove cost effective and efficient. Established vendors offer the economies of scale that building in-house never could. In a world where 80% of investment workflows are standardized. There just isn’t a need to go to extensive lengths in-house. Most vendors provide the flexibility to customize that crucial last 20% of an OMS through plug and play connectivity, with niche or bespoke systems that provide a firm with its competitive edge.

With time and resource limitations, firms should sort out their primary objective, whether it’s getting their products to market faster or fulfilling client mandates. In-house builds, especially when upgrading legacy technology, can be impractical when those personnel have other core duties; conversely, reputable vendors offer development teams ready for quick deployment.

It remains fair to say that in-house teams have a wide range of options at their fingertips, whether it’s APIs, Software-as-a-Service or cloud-based applications. These are competitively priced, making them easier to procure and implement. Many vendors are also maximizing on these technologies, together with multi-asset class coverage in their offerings. With one vendor at the helm of your investment system, there isn’t the need to steer through these multiple vendor relationships and bear the burden of vendor risk associated with so many moving parts.

In the wake of recent cyber-attacks, data security remains a concern when buying outside technology. There now exists a choice between client-controlled on-premise deployment and robust hosted services, on which vendors have worked hard to ensure disaster recovery and business continuity are vigorously managed.

When we look at internal risk, data lineage and audit trails minimize disruption to a degree, but often many front-office personnel continue to begin their day validating, reconciling and manipulating their cash, position and analytics data. An integrated enterprise solution can minimize these manual workflows to improve automation. Investment Book of Record-led intraday data, that is accessible to the front, middle and back office, equips asset managers with the best data to make informed investment decisions.

In 2017 alone, global asset managers face MiFID II, EMIR, STFR and BCBS IOSCO regulation. That is a significant amount of regulation for in-house teams to keep up with, without specializing in any one area alone. Large vendors maintain dedicated resources to monitor global requirements, walking asset managers through operational changes and leading implementation. As with collateral management and transparency reporting, most of these changes are standardized. With vendors making this client-wide investment, it seems illogical to replicate this costly process in-house.

At the end of the day, choosing to buy or build isn’t part of the equation, it’s the entire sum. Millions of dollars’ worth of R&D goes into the creation of vendor-led solutions. Once that solution is in place, the real value of buying becomes clear. The responsibility to continually advance technology and remain globally compliant does not rest on your shoulders alone, enabling asset managers to focus on competitive edge and generating alpha. The current disruptive market calls for a strong partnership with established vendors, who provide integrated technology, for the most optimal operational foundation.