The provision of software in the financial services industry is extremely competitive. At some point, functionality is no longer a differentiating factor, and providers of portfolio management software push to reduce the costs of supporting the product.
In another attempt to differentiate their products, developers are adding wizards, macros, on-screen instructions, templates and other performance support features in order to decrease the difficulties associated with using such portfolio management systems. This has resulted in users being less likely and less willing to pay for training sessions on the product, and so training revenues have also declined.
Market maturity is reflected in this effort to drive down costs, as well as in the demand for more integrated products. The number of features that a particular portfolio management system can provide which were once considered additional extras, are being considered as standard features as the market matures.
The automobile industry is a great example of this. Almost twenty years ago, cars were not fitted with radios and speakers, and car owners would buy them separately and install both themselves. As little as two years ago, satellite systems had to be bought separately. Today however, the car marketís levels of integration mean that you can find the same features in a Fiat 500 as you would in a Ferrari. The Ferrari is obviously a little more flash, but the extras that at one time differentiated it from other cars have now become industry standard.
Similarly in areas of the financial market, especially investment management technology, there has been a shift towards integration in recent years as the market matures.
In the past, an investment manager would have to buy numerous systems in order to measure portfolios effectively. He would need to buy a performance and attribution system, a risk system, an asset allocation system, a system for research, and he would also need to find a vendor that has all the necessary data to calculate risk and performance. Asset managers are looking to have all their portfolio analytics integrated within one portfolio management solution.
Today, it is expected that a portfolio management systems is low-cost, easy and quick to implement and easily accessible via the web, as well as having all the necessary pricing and benchmark data and the ability to offer a simple user experience.
In an integrated system, data is most important; pricing data, benchmark data, risk numbers, accruals for bonds and corporate actions to name a few. The difficulty arises when providers of integrated solutions need to incorporate all the necessary data into this one system. The need therefore arises to provide data coverage in addition to functionality. This remains a challenge today, but the industry is also developing at a rapid rate to ensure the development of intra-asset class and functionality.
Even though there are areas of the front and middle office that remain complicated and therefore also specialised, integrated portfolio analytics is undoubtedly the direction that this industry is going. The need for managers to share portfolio analytics information and reports will ensure that software as a service (SaaS) solutions are rewarded, making the most of the benefits that the cloud has to offer.