By Mark Trousdale, CMO and EVP at InvestCloud

Whether to buy versus build your technology has been a longstanding debate in financial services and wealth management. And for much of that time, it was largely still a debate worth having with pros and cons on both sides. For example, historically, it was hard to achieve differentiation and control with purchased solutions. Nowadays, however, the right technology partner can provide wealth managers with scale, differentiation and control, without the inherent inefficiencies, risks, and costs of building in-house. A modular approach is critical to allow wealth managers to get exactly what they want, where they want it, and then use the technology as a differentiator.

Selecting the right technology partner makes this possible. And business realities are driving much of the industry to realise that building is no longer needed nor advisable. Hence the debate is heading toward a clear consensus towards buying. Nevertheless, some in the industry are still resistant due to historically poor experiences.

Cultural resistance to change

A lack of knowledge translates into fear of losing control – especially among larger wealth managers. A lot of this is down to how technology has been traditionally delivered. It has been monolithic with large chunks that have ended up being clunky, inflexible and not fit to deliver differentiation. As a result, there has not been a sufficient degree of control over the buying organisation that rightly wants to ‘own the last mile’ and provide something that stands out from the competition.

A feeling of the problem being insurmountable also adds to resistance. In the past, legacy technology that relied on hard coding meant technological transformation was expensive and risky. With these legacy technologies, it has been far too easy for technology projects to take on a life of their own. Many failed to deliver on the original imperative that drove the investment decision, and even more were binned before they were delivered.

Sometimes technology teams can feel like turkeys voting for Christmas when it comes to advocating buy over build because they feel their jobs are at stake. However, a healthier way to look at this is that they can be a part of the larger value chain of digital transformation, working in tight partnership with the technology provider to design and engineer the future state. They also play a crucial role in integrating new solutions with the in-house technology environment. Not to mention, by focusing away from slow and inefficient application development through hard-coding, these teams can focus on higher and better uses of their time – such as digital strategy.

The real ROI benefits

Real-life imperatives – notably the need to improve business processes and functions and to get measurable ROI from technology – will drive change. Onboarding is the obvious example of a process that could be vastly improved and deliver a better client experience and thus improved client growth. Promoting growth at scale with operational efficiency – that is true ROI.

Having realistic expectations is key – there’s a lot of time and effort that goes into process management, but projects don’t come together by magic. It is crucial to lead with design and only then to build and configure. And design is at its most compelling when infused with behavioural science. Most technology partners don’t have this competency, so wealth managers should be selective.

The importance of data and behavioural science

Data is the fuel of the wealth management industry. If you can’t access, integrate and trust the data, all of the most insightful analytics and charts mean nothing. Data mastery can only be achieved with a digital warehouse that leverages a mature and comprehensive financial data model. Bundling digital financial applications with robust data solutions is fundamental when it comes to smaller wealth managers, many of whom lack any data management capacity. With larger wealth managers, the challenges are different but equally critical. Larger firms tend to have a lot more technology debt due to having many point solution systems that don’t integrate. This means that client information and market data are everywhere and manual processes abound.

Besides the need for robust data management to enable ROI, providers also need to demonstrate a history and success of modularity – in the sense of not being monolithic with their technology but also in their ability to move at pace and work with in-house teams. The more clients look at real outputs, the more they can make better-informed decisions no matter what they choose to do. The most effective way to do this is with behavioural science, both gaming theory (aka the science of engagement) and decision theory.

The world is moving at too high a pace to wait for slow, expensive projects. This can be achieved through tools like InvestCloud’s AI code generator called iProgram: a no-code tool that allows enables a designer to do the work of traditionally 50 programmers and deliver projects in 3-6 months, not years. However, it’s not all about speed – getting the right outcomes for our clients, including value delivery and exchange is imperative. It’s important to uncover what the client is trying to achieve. A Functional Design Study is implemented to put structure to this process and clearly define core objectives and design the right outcomes for clients.

Hybrid solutions are the answer

A mix of subscribing to cloud apps (“buying”) and maintaining legacy systems, some built in-house, should be the way forward, as firms shouldn’t have to bin everything they’ve got in order to bring in new solutions. But in order to make sound buying decisions, wealth managers need a solid understanding of what is actually out there so that they can forge the right partnerships. It is ultimately the responsibility of the wealth manager to figure this out. However, it is also helpful if providers can make it easy to make a good choice and provide as much or as little of their stack as a firm needs and not be precious about that. You can’t get away from the obligation to steer your own ship, but firms need help, and vendors can and should provide leadership – especially when it comes to helping with data, from how it should be stored and used to how it can be shared effectively across the entire technological ecosystem of the wealth manager.

The business and economic pressures we are all currently experiencing are forcing differentiation and reduced risk as priorities. It is still too often tempting for wealth managers to think that in-house builds reduce risk (when in fact they’re often riskier), and that differentiation is impossible from third-party tech partners. If these are the attitudes driving action, wealth managers will end up with poor quality.

Given that end-client expectations are very high, there is a huge opportunity for vendors to step up – and for wealth managers to rethink how they work with tech partners to focus on value and differentiation so that they can provide a fantastic end result to their clients. Partnering well – in a well-informed, value-orientated way – will drive further enthusiasm for buy vs. build.