Our poll this month asks people from the industry what their key priorities are in selecting an investment management software. Rightfully so, the most important feature for financial institutions in making this decision is a scalable architecture, followed by integration with legacy systems and mobile-enabled capabilities.
Scalability has become increasingly important in the last few years, as technology has accelerated customer acquisition and global market expansion. It is particularly popular amongst financial institutions in carrying out their digitization agendas.
Scalable architecture in financial technology is the ability of a system to cope and continue to perform optimally under an expanding workload. A system that scales properly will be able to maintain, or even increase, its level of performance or efficiency even when it is tested by larger operational demands.
There are two facets to scalability; first, in terms of size and throughput capacity, scalability is needed to handle the increasing volume of trades, tick and tie the reconciliations, as well as generate accurate and timely reports. And second, in terms of supporting the expansion of the business, a scalable architecture is required to accommodate a growing client base, the addition of new funds, asset classes and strategies, or break into new markets.
A lack of scalability in either capacity or business expansion can severely impact an institution’s ability to grow and maintain competitiveness. The consequences can include loss of potential profit, cost pressures, reputational risk, failing investor due diligence, lack of cash position and trading clarity, as well as missed opportunities to move into new markets, strategies, or asset classes.
Another advantage of a scalable architecture is the ability to maintain cost efficiency over the longer term. As we already know, replacing redundant legacy systems with the next cheapest alternative is a waste of investment resources - so is ramping up headcount to cope with increased transaction volumes or to meet investor demands. Additionally, the time and operational disruption involved in training staff on the new system will also adversely impact a business.
For investment managers, scalable architecture is particularly important in maintaining a competitive edge. With the growing demographic of both the mass affluent and high net worth individuals, financial institutions that lack a scalable architecture suffer the risk of lagging behind, and ultimately, falling out of the race completely.
In today’s volatile and cutthroat fundraising climate, part of a financial institution’s story to both investors and stakeholders should be to demonstrate that the company has made the right investments into its business to support all its clients properly, and that it is ready and equipped for success. It is therefore essential for financial institutions to plan for growth and partner with the right fintech companies to acquire the best scalable solution.