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As they adapt to an emerging new paradigm, external asset managers (EAMs) are stepping up their spending on portfolio management systems. At a time when financial regulation and the advent of larger firms are leading to a huge increase in the burden of administration, they are turning to technology to streamline complexity and improve their efficiency.

Interest in portfolio management systems is accelerating fast. Through 2019, more than 60 intermediaries – mainly from Switzerland and the UK – approached Julius Baer’s consulting service for advice about suitable portfolio management systems, up from about 25 in the previous year. And in just the first two months of 2020 about 20 enquiries have been received.

In an age when consumers demand instant responses, so portfolio managers are increasingly harnessing digital solutions. Among other things, the latest portfolio management systems provide real-time insight into clients’ portfolios, manage regulatory checks and reporting, and place orders instantly with custodian banks that are FIX (Financial Information Exchange) protocol capable.

Catalysts for efficiency
Why is digitization gathering momentum now? Firstly, the evolution of EAMs. There has been a trend in recent years for relationship managers to leave banks and set up as EAMs. During their years in employment, banks provided tools and capabilities that helped relationship managers to serve their clients efficiently, but now as independent EAMs they seek similar tools. The larger the firm, the more clients they manage and the more complex it becomes (e.g. more custodians, complex client structures). At some point, the need for automated portfolio management systems becomes pressing.

Secondly, financial regulations across the world, especially in the European Union and Switzerland, have imposed many more code of conduct obligations, as well as regulatory reporting requirements. While it is possible to comply manually with the EU’s MiFID II and Switzerland’s FinIA/FinSA, the amount of work involved is staggering.

Imagine having to manage portfolios and the attendant reporting requirements across, for example, 100 clients with three to four different mandates across six custodian banks. Especially if all orders had to be sent by email, perhaps in a spreadsheet, rather than directly interfacing via FIX with the banks. In fast-moving markets, managing portfolios would be unwieldy.

Portfolio management systems, on the other hand, can automate most of these tasks. They gather data daily from custodian banks and provide consolidation for each client, while automating basic investment tasks and compliance requirements such as assessing whether a product is suitable for a client. Order routing through FIX protocol, a worldwide standard, transmits orders securely to banks in real time ensuring fast and secure access to financial markets.

Asia’s craving for the latest tech applications is pushing developments further. Initiatives are under way to build these capabilities.

Selecting the best systems
Fintech companies are responding to the rising demand for digitization by bringing new portfolio management systems to market every month. At Julius Baer, we regularly assess portfolio management systems as part of our service for EAMs. Last year, we evaluated 35 globally and shortlisted 22 of them. In the first two months of 2020, there are another 10 new systems that we plan to evaluate.

When assessing systems themselves, we have six tips for EAMs:

  • Evaluate the software vendor, not just the system. Look into the strength of its business model, the scope of support and the technology infrastructure.
  • Check the integration and automation of client management functions, trading capabilities, accounting and reporting.
  • Review the tools for the board, investment management and wealth planning.
  • Assess links with your custodian and your back-office services.
  • Ask about the regulatory requirements covered by the supplier.
  • Confirm the pricing and the proposals for system integration and migration.

Real-time transparency
As EAM complexity mounts, having a portfolio management system with FIX connectivity is fast becoming a necessity. Without it growing and scaling up a business will be difficult, as manual administration of portfolios and compliance can be a huge task. What’s more, these systems allow EAMs to place orders instantly in fast-moving markets. Finally, they comply with best execution and reduce the operational risk of humans making errors.

Beyond this, wealthy and younger clients expect instant insight into their portfolios. In the age of “millennials” and “generation z”, they want to be able to see their consolidated portfolios in one place, regardless of whether they are managed by multiple EAMs or custodied with multiple banks. Portfolio management systems can offer such client portals or e-banking. 

So, digitizing is more than a question of efficiency. Not doing so might, arguably, be a disadvantage in the eyes of both some of today’s wealthiest clients and the younger clients who are the future.

Contact us
> Please contact us if you want to learn more about our services for intermediaries.

Key take-aways

Julius Baer is receiving a growing number of requests from EAMs to help them in selecting portfolio management systems. Digitization is needed not just to boost efficiency but also to meet client requirements for transparency.

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