Our article was published in Barron's on January 25, 2018.
We often hear that younger firms are likely to invest more on technology than older and established firms. The truth is older firms are willing to spend the big bucks to upgrade their infrastructure, but there’s a complication.
The challenge for established firms is upgrading portfolio accounting and reporting legacy software that contains many years of transactional data for thousands of accounts. With so much important client data at stake, advisors attempt to tackle the legacy dilemma by keeping their current technology. Let’s review a couple of questions I’ve heard from advisors.
“Can we keep our portfolio accounting software and implement workaround solutions?”
The short answer is yes. You can implement solutions using Excel or third-party applications such as report overlays or client portal. However, your underlying data structure may be obsolete, and integration partners may be unable to work with your legacy software.
Your goal is a technology structure that is good, not good enough. The question I ask advisors is “are you implementing long-term solutions or band-aid solutions to push back the decision-making process?” Then I have advisors imagine competitors servicing clients with upgraded technology, and I ask whether they think a patchwork infrastructure can provide the same results.
“With so much that can go wrong, is replacing our legacy software worth the effort?”
Much of what goes wrong can be traced to advisors’ unrealistic vision of the process, including letting vendors control the efforts and budgeting for only the software’s base price. When working with advisors, I emphasize the need to create a realistic framework for a successful replacement strategy.
Here are two top pain points based on advisor feedback, and guidelines to help avoid them:
- Time and cost overruns –Too often, advisors rely solely on the vendor’s timeline and proposed cost. The vendor’s timeline is a subset of your firmwide project plan, which also includes user acceptance testing, firmwide internal training and client rollout. A realistic budget goes beyond the software’s base price and includes expected costs for features necessary to service clients; additional vendor support beyond the annual allowable hours; existing and new software license fees while maintaining dual systems, and human resources needed for the project.
- Data changes – Many advisors find changes in the data after converting to a new portfolio accounting software – most noticeably performance and gain information. Vendors tend to simplify the data migration process. It is unrealistic to believe that converting 10 to 25 years of daily transactions, including complex transactions, is a cut-and-paste effort. Discussions with vendors should include what causes changes in data, which transaction types are difficult to migrate, and a review of your complex situations. Understanding how client data and calculations will look in the new software will minimize surprises. This needs to be done before the contract is signed.
The phrase “If it ain’t broke, don’t fix it” may have overstayed its welcome. Look at your legacy software dilemma as an opportunity to build the right infrastructure for your firm’s future. Keeping your mindset on a good technology structure with a realistic plan to achieve it will make this a dilemma you can cross off your list for many years.
Are you challenged by your legacy software’s limitations, yet don’t know how to proceed? Contact us for additional information.