Why Investment Management Firms Should Replace Their Legacy Systems Now and Not Wait

By David J. Csiki, Managing Director, INDATA on Friday, June 14th, 2013

It goes without saying that in a world of scarce resources the intellectual capital of an investment management firm should be primarily focused on the firm’s organizational goals of managing investments, servicing clients and maintaining compliance, not trying to manage the inefficient workflows that are created by using legacy systems.

Definition of Legacy System

How are legacy systems defined? Typically, legacy systems deploy dated technology architectures: DOS based systems, flat file databases, silo-based architectures and the extensive use of outside spreadsheets for workarounds are the usual culprits. Another area to look at is how often system updates are performed; if routine system updates are few and far between, this is typically a very good sign that a system is legacy or quickly becoming legacy.  A third area to look at is whether or not the vendor providing a given solution is pushing major, fee-based version upgrades.

If a given system is classified as legacy, investment management firms owe it to themselves, their clients, and outside stakeholders to conduct proper due diligence and make sure that a number of solutions are evaluated and considered, not just the incumbent vendor/system.

Why Replace Legacy Systems: The Obvious Factors

As a general rule of thumb with regards to technology, legacy systems in whatever form they exist will ultimately be replaced. It’s just a matter of time. By replacing legacy systems, investment management firms can gain a competitive advantage over their peers. Those who take a proactive approach will not only increase operational efficiency, improve compliance, and likely reduce long term costs, but also have renewed focus on activities that truly matter. Instead of staying focused on the status quo, investment managers should seriously consider replacing their legacy systems now and not kicking the can down the road.

Overlooked Effect of Retaining Legacy Systems: The Atrophy of Intellectual Capital

The ongoing maintenance of legacy systems has another negative residual effect that is extremely significant: it ties up otherwise very intelligent people who often use their formidable intellects to manage fundamentally inefficient processes. The result is often a gross mismatch of skill sets, not to mention a complete waste of firm resources. Replacing legacy systems not only has the effect of improving operational efficiency, enhancing compliance and reducing long term costs, but it also has the added benefit of freeing up the time of smart people in operations, technology, compliance and trading to do what they do best. The end result is most often a happier and more competitive organization. Saving money is important, but having happy and productive employees is priceless. This benefit is critical and is the most often overlooked reason for replacing legacy systems by investment management firms.

INDATA provides software and services to a variety of buy-side clients including asset managers, registered investment advisors, banks and wealth management firms, pension funds and hedge funds. Assets under management range from under $1 Billion to over $100 Billion across a variety of asset classes (i.e. equity, fixed income, etc.) both domestic and international. For more information please visit: www.indataipm.com

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