06/07/2016 05:33 EDT | Updated 06/08/2017 05:12 EDT

Avoid Turning Your Investment Firm Into A Technology Company

As information technology's development accelerated, the investment industry took notice and began developing systems that would automate formerly manual tasks. Over time these systems have evolved into something more. Unfortunately many firms have not properly implemented and managed their systems.

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Businessmen Watching Data on Flat Panel Monitors

As information technology's development accelerated, the investment industry took notice and began developing systems that would automate formerly manual tasks. Over time these systems have evolved into something more. Unfortunately many firms have not properly implemented and managed their systems.

The current state of some firms is one of perpetual implementation; spending years poorly implementing a system only to have to change to another. In these situations, it is more than likely that the IT department is playing too large a role in the firm, the operations team is struggling to operate efficiently, specialists are acting solely as distributors of information with no added value in the information supply chain, and a front office improperly interpreting the results due to a lack of expertise in these fields.

Common Practices

Firms who have poorly managed their systems have many common characteristics. It is not uncommon to find the executive level disconnected from everything not front office and sales, an IT department that assumes a larger role than it should, consultants whose contracts are continually rolled over, and the role of the specialist relegated to that of a "middle man."

The first category can be labeled as "Insciens Consuasors." Loosely translating from Latin, it describes consultants who have limited knowledge of the system and the financial understanding to translate the requests of the specialist to that of the system. Their hourly rate is usually cheaper than the more qualified consultants but they end up costing your firm much more since you'll end up correcting their work once they're gone.

The second undesirable type of consultants can be described as "Deceptios Consuasors." These consultants are quite knowledgeable about the technical and finance aspects of the system and can provide excellent service, if they desired to do so. The issue with them is that they view the target date of a project as open ended. They will seduce you with their knowledge and constantly find issues with the system or your firm hence justifying extensions to their mandates.

They tend to recommend systems they specialize in rather than put the client's needs first and convince you that they are indispensable.

Lastly, the third and most desirable type of consultant is the "Pius Consuasors." These consultants have the knowledge and expertise your firm requires, along with the professionalism to provide a service that is truly in the best interest of your firm. They are able to clearly define and meet the target date.

Moreover, they are able to communicate issues in a clear and concise manner and will not overwhelm you with technical jargon to ensure any unnecessary extensions of their contract.

Committing these errors has proven over and over again that firms overpay for a system, from a monetary and personnel point of view. Even if a system is finally implemented, a firm with too many negative practices will probably have to replace that system and the whole process is repeated. The end result: you now have an investment firm transforming into a technology company without the high multiples that tech firms usually carry.


Getting lost in the confusion of mismanagement and bad advice, it only takes a little common sense to ensure that systems benefit the firm as advertised. The following steps are a general guide to minimizing system issues:

1. The Audit: The specialist should conduct a full audit of any of the firm's current system(s) that will have an impact with the one being proposed and as well as, a full audit of the operational tasks currently being used. This must be done before the search for a vendor has begun. The benefits of this audit are that it will identify any weak points the firm has and provide the time to make operational improvements without having the meter running on the hourly rates of vendors and consultants.

2. The Vendor Search: Once the audit of the firm's operations has been completed, the specialists, along with support from IT, can begin the vendor search. The audit will have provided the necessary knowledge of what data your firm has and any possible interaction with established systems in your firm to ask the proper questions in the vendor evaluation. Once you have sent out requests for proposals, you must also meet the vendors' technical staff, who are system experts and can provide you much more feedback than a sales team can ever do.

3. The Consultant Search: If your firm lacks the in-house expertise to implement a system, then it is advisable that a consultant is hired to assist you in the implementation. Due to the time limitations of the vendor, relying solely on their staff is unadvisable and will delay the implementation. Implementation can be a daunting task and many firms would rather have their specialists spend their time providing quality analysis to the benefit of the firm and its clients.

Moving Forward

For an article, this may be a little lengthy but it is a subject that is not given enough consideration. The investment industry takes for granted the amount of work and implications of investment systems. It is essential that every level of an investment firm does their role to maximize the benefits of a system. With the proper approach and preparation an investment firm can greatly profit from the advances technology has to offer.

Which firm would not want to have an efficient free-flowing of data and analysis that they can rely on in evaluating and building their strategies to help outperform and contribute to the bottom line; a place where the front-, middle-, and back-office can work in unison without exhausting each other's resources?

Portfolio managers would not have to maintain their excel schedules breaking down data and operations would not have to spend needless time dealing with system caused data related issues. All you need is a little common sense.

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