Fintech on Friday: Portfolio management systems adapt to new era

The portfolio management system (PMS) has always been central to any wealth management organisation. However, the needs and possibilities around this piece of kit are changing. 

Looking back, the PMS tended to be quite homogeneous, a standalone system, often separate from other systems. It was an investor accounting toolkit, functioning as a book of records for investors and, due to the high cost of financial services technology, often limited to being deployed within larger organisations. 

Yet the PMS has become more specialist, perhaps with a focus on institutional money managers, hedge funds or family offices. The buyer market has been able to access a wider variety of tools. As part of that evolution, the market also saw the PMS incorporate a broader set of functions beyond its accounting core. These might include functional areas like investment decision support and analytics, business intelligence, client relationship management, compliance and more. The PMS also became a broader wealth management platform.

The PMS has evolved but it must continue to adapt to remain relevant. The drivers of this are multiple.

Efficiency and cost

The PMS needed to become easier to access for the many and broad in its functionality to get as close as possible to an all-in-one offering. As the marketplace has become more complex, that theme continues. Having multiple systems can become convoluted. Newer players like London-based WealthObjects are keen proponents of an integrated, end-to-end package, while firms that have been in the market for longer, such as SS&C Advent, continue to evolve.

Regulatory necessity

Regulation needs to be closely tied to many of the processes which are touched by the PMS. Consider the advice process and the trail attached to why a specific investment or product was recommended to a client. Unless the PMS can easily show that trail, there is a regulatory risk. Having those functions integrated can make a significant difference. 

Portfolio power

How portfolios are built, examined, managed and delivered is evolving. Increased computing power can deliver highly complex models, mass personalisation, hyper fast decision making, matching markets, products and investment strategies to the individual needs and objectives of clients. The traditional PMS is miles away from this world. Firms like Zug-based Tindeco in Switzerland are developing powerful new technologies using simulation, optimisation and AI to provide systematic and highly automated investment management. Allied with the role of the PMS, this is about democratising quantitative investment management.

Digitalisation

The broader needs and consequences of digitalisation cannot be ignored. How can a standalone accounting system deliver against the needs of a digital wealth platform? It cannot, at least not quickly and efficiently. The modern PMS must consider the needs of multiple stakeholders, including relationship managers and, importantly, the end client. 

It must be proactive and relevant to a broader user base including  digital-only clients. That is why firms like Profile Software can broaden  application of their PMS offerings to create digital advice/wealth tools, able to automatically generate investment proposals based on client profiling, and deliver an increasingly personalised approach to each end client.

The Cloud

Finally, an area that helps tie all of the above together in terms of access, cost, portfolio power and broader distribution is the arrival of the Cloud. This is helping reinvent the role, application and capability of the traditional PMS offering and allowing the market to move from PMS 2.0 to 3.0, 4.0 and so on. SS&C Advent has adopted the Cloud around their core PMS offerings to make delivery more nimble, competitive and engaging. This type of development is not only opening up firms to a broader potential client base, but adding to the power of their market offerings. Much the same is true for other players, including Profile Software, Tindeco and WealthObjects. 

The traditional PMS has moved from that standalone accounting tool to a broader wealth management platform and, in this modern era, is now set to play that core, front-to-back role to help wealth managers to deliver in the digital era. End-to-end, cloud-based, accessible, automated, plug and play and all those funky terms are repositioning the humble PMS as wealth management’s core toolkit.