Thought Leadership

To buy or to build?

Debunking the age-old debate with the simple truth

The age-old debate of buy vs. build continues to passionately divide many in the asset management industry. There have, and to some extent, always will be a time and a place for both. In today’s fast paced global market, the case for investment technology solutions that are innovated and sustained by established vendors, is becoming ever more compelling. This is particularly the case with front office technology, including Order Management Systems (OMS), that are under immense pressure. With asset managers dealing with more data than ever before, and demands for greater transparency among investors and regulators, the time for action is now.

In a recent global survey aimed at asset management and banking firms, Adox Research found 64% will be investing in new OMS technology over the next three years, be it adoption or replacement of current OMS systems. The same survey found a 19% increase in firms preferring vendor-based deployment in the future, moving away from in-house management, and that’s just the figures. The facts; Lower cost, fewer resource constraints, less time to market, and vendor expertise all combine to make buying front office technology solutions, the natural choice.

In a nutshell, buying ‘off the shelf’ is cost effective and efficient. Established vendors can offer asset managers the economies of scale that building in-house could never fully achieve. In a world where 80% of investment workflows are standardized, there just isn’t the need to go to extensive lengths in-house. What’s more, most vendors provide the flexibility to customize that crucial last 20% of OMS through plug-and-play connectivity, with niche or bespoke systems that provide your firm with a competitive edge.

With time and resource limitations, you've got to ask yourself, ‘is it really the right focus and the best use of my department, to build and implement this in-house?’ Should that money and time not be invested in solutions that are going to help you get your product to market quicker, or fulfil my client’s mandate better? Undertaking in-house builds requires a dedicated team, whom the firm becomes fully reliant on. A reputable vendor can offer a squadron of dedicated resources that can be quickly deployed. Furthermore, the use of agile development teams has significantly decreased the time it takes to implement a new system, taking away the historical pain associated with such changes.

It’s fair to say that in-house teams have a wider range of options at their fingertips these days, whether it’s open source systems, Software-as-a-Service, or various cloud applications. These are competitively priced, making it easier to procure and implement. It’s interesting to note though, that most of the major vendors are also maximizing on these technologies as part of their offering. In this way, you benefit from the most innovative tools without having to manage multiple vendor relationships and bearing the burden of vendor risk, associated with so many moving parts.

Another point worth raising is that FinTech start-ups come and go, but an established vendor who you can partner with to grow your business, is an invaluable advantage. Indeed, in Adox Research’s

‘Follow the Money’ survey, 54% stated a desire to work with a partner focused on service and support, was key to their decision to buy front office technologies. The innate knowledge vendors possess, combined with sophisticated investment technology platforms that offer a market leading Investment Book of Record (IBOR), or coverage into esoteric asset classes, make for a sound buying strategy.

What about the real value-add?

The implementation process is just one half of the equation. The real value is in the maintenance of operations. This is what separates good vendors from the best vendors. SimCorp for example, provides two software releases a year to ensure up-to-date market coverage and responsiveness to its clients’ needs. Furthermore, in the case of regulation like MiFID II, we have a dedicated team monitoring global requirements, and planning for any operational changes required. Again, most of these changes are standardized across the industry, like transparency reporting. When a vendor is already making the investment across their whole client-base, it seems illogical to replicate this process in-house, and at much higher expense.

When it comes down to it, buy vs. build, it isn’t’ just about that initial phase most operational managers concentrate on. The real value of buying is once you have the software in place, the responsibility to continually advance it and remain globally compliant doesn’t rest on your shoulders alone. A strong vendor partnership provides asset managers with the best storm wear to face the current and future deluge of regulations, leaving them to focus on gaining the competitive edge and generating alpha.