Navigating the Evolution of Target Operating Models for the Front Office

Author: Senior Consultant, Jonathan Phillipo.

Over the past twenty years, the asset management industry has experienced a pivotal transformation in its technological landscape, profoundly impacting its target operating models. This evolution is not merely a series of incremental changes but a comprehensive adaptation and advancement in how asset management firms operate and strategize. Understanding and integrating these changes into target operating model decision making is crucial for these firms. This shift from traditional methods to more dynamic, technology-driven models demonstrate a progression that is essential for navigating today's complex technological environment. Understanding this evolution in their target operating models is key for asset management firms to remain competitive and efficient in a rapidly changing industry.

The Emergence of Custom Solutions.

In the late 1990s and early 2000s, there was a marked trend towards bespoke software solutions in the asset management industry. Companies sought software tailored to their unique needs, from risk management to trading platforms. This focus on customisation provided precise tools specifically suited to each firm's requirements. However, the approach also came with challenges, including the costs and resource allocation required for maintaining large in-house development teams, prompting the need for more scalable and practical technological approaches. Another aspect of the solutions around this time was a partial STP (Straight Through Processing) solution, where only the Front or Back Office were semi-automated.

The Rise of Specialised Software.

As technology advanced, a shift towards specialised software vendors occurred, with these entities offering 'best-of-breed' solutions. Asset management companies began integrating various specialised tools for different operational aspects. Despite its specialisation benefits, this approach led to increased costs and complexities in managing multiple systems, underscoring the need for more integrated technological solutions.

Integration and the Single-Platform Trend.

The industry's response was a pivot towards integrated, single-platform solutions. These monolithic systems aimed to provide comprehensive toolsets, sacrificing specialised edges for a more organised and unified approach. However, the single platform approach can bring in issues where an asset manager wants to find a strategic edge over competitors - resulting in a need to build custom solutions around the edges of the core platform.

Where Next? Flexibility Meets Efficiency.

The next evolutionary step in asset management technology will be a hybrid model. This approach combines the comprehensive functionality of monolithic platforms with the flexibility of adding specialised capabilities. A good example of this is where Execution Management Systems (EMS) are complementing the larger platforms.

Crucial to this evolving model is interoperability, allowing asset managers to seamlessly integrate different systems and tools. This interoperability ensures a cohesive operation, combining the efficiency of integrated platforms with the agility of tailored solutions. Standards such as FDC3 (Financial Desktop Connectivity and Collaboration Consortium) help solve some of the challenges of interoperability. This technology is designed to enable seamless communication and interoperability between financial desktop applications. It was created to address the challenges in the financial services industry, where traders and analysts often use multiple, disparate software applications for data analysis, communication, and executing trades.

Conclusion: An Evolutionary Path.

In conclusion, the future of asset management technology lies in embracing these emerging technologies, while balancing innovation with security and regulatory compliance. Firms that can effectively integrate these technologies into their operations will be well-positioned to lead in an increasingly competitive and technologically sophisticated market. This ongoing evolution underscores the industry's commitment to leveraging technology not just for operational efficiency, but also for creating more value for clients and stakeholders in a rapidly changing financial landscape.

The technological landscape in asset management has followed an evolutionary path, shaped by the industry's changing needs, challenges, and experiences. Moving from custom-built solutions to integrated platforms, and now to a hybrid approach, the focus has been on balancing efficiency with customisation. Interoperability plays a key role in this current trend, enabling firms to combine ‘the best of both worlds.’ As asset management firms look ahead, understanding this evolutionary trajectory is essential for adapting to and capitalising on future technological advancements. The goal remains to find the most effective and efficient ways to manage assets in an ever-evolving technological landscape. For more information on how we can help with your Target Operating Model Transformation, please contact us.