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Peter Hill

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Peter Hill - SimCorp

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Did we all get blindsided by brands?

31 October 2016  |  4861 views  |  1

So last year my beloved Audi blew up. Its demise didn’t happen overnight, of course. It was slow, painful and costly with thousands of pounds spent on repairs. Shortly afterwards I went straight to an Audi dealership to  upgrade my old model to a Q5, only to be reminded by my wife that we’d already had  two Audis, both beset by similar problems.

I agreed that it might be time to change brands, but I wasn’t sure which brand to opt for. What if I opted for a different car make but experienced similar problems to those I’d had with my Audis?

Having spent time thinking long and hard about what to do, we decided on a smaller car but remained with one of the premium brands, a BMW. I wasn’t overly excited by it at first, but now I love it. So far we’ve only had to get a wheel realigned, a service which BMW provided immediately, no questions asked and at my convenience.

I actually see similar things happening in the investment management industry when reviewing a firm’s technology strategy. Often individuals place more importance on brand equity rather than whether or not the technology is right for their particular trading and investment needs. All too often we hear industry experts say “You’ll never get fired for implementing XX solution” or even “We know this software isn’t optimal but we know the brand so we’ll stick with it”. If you’re of this mindset, the risk is that you may be letting brand take over your ability to assess and mange risk.

As a person who works at a fintech firm, I can name two things that help me sleep at night. First, invest in the product to stay as relevant as possible, so when a review happens, it will mostly prove that the firm has the right technology for their business strategy. Second, if your solution is not optimal for the client, adjust and customise where needed. Understandably no firm wants to upgrade technology that isn’t fit for purpose but removing legacy technology is very challenging once it is in place. Versioning by vendor should therefore be taken very seriously. Upgrading to a newer version makes sense when it adds value and has the capacity to keep up with the changing landscape to avoid heart surgery further down the road. Each version also needs to ensure the cost of technology is not eroding away any profits or efficiencies that have been gained.

This ever evolving environment has become the norm, and investment managers utilising older systems often get exposed to technology limitations restraining their ability to accommodate new regulations, asset classes or investment strategies within their existing setup.

Other inefficient processes such as batch reporting exacerbate the problem. Investment firms need the ability to move critical information multiple times a day to the front office allowing for improved investment performance, and that is not achievable without real-time data.

The question is why are investment firms putting themselves in this position? In the current market environment, I believe it is the responsibility of the vendor community to continue to deliver value, helping clients to deliver alpha to their own clients. But without vendors investing into R&D, systems will become outdated and very expensive to upgrade, hindering their client’s ability to compete.

Coming back to my car parallel, I would have continued to invest in the Audi brand but I saw little in the way of reinvesting the profits it made into R&D and improving the technology built into its cars. If this had been the case, I would have been much less likely to change brands. This is also what we need to see more of among technology providers to the asset management industry. This will ultimately make for a beneficial relationship whereby risk can be reduced and operational efficiencies increased for the investment manager, and client retention guaranteed for the service provider.

TagsRisk & regulationInnovation

Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 02 November, 2016, 16:49

Nice post. I recently ditched Amazon after 15+ years and bought from a competitor. The competitor has been wooing me for 5+ years with special offers. I hadn't budged. End of the day, I made the switch when I felt cheated on a recent occasion when I was trying to buy something from Amazon. Moral of Story: It's for a big brand to lose a customer. I think this is valid for both B2C and B2B.

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