Did you watch The Big Short? The premise of the movie revolves around the mechanics that precipitated the financial crisis of 2007-2008, and behind-the-scenes maneuvering—think short selling; credit default swaps; synthetic CDOs; fraudulent activity. However, this theme of ‘shorting’ can be traced back way beyond 2008. In fact, the author of the book on which the film is based—Michael Lewis—wrote another brilliant book about Wall Street and the financial services market back in the late 1980s called Liar’s Poker. For better or worse, I had a front row seat, having worked on Wall Street and in the City of London back in those days. But it wasn’t all about greed and high-stakes trades—there was actually a lot of innovation that characterized that time.
When I worked at Drexel Burnham Lambert in 1988 we were developing—from the ground up—a capital markets trading system. I was the junior member of a team that spent six months whiteboarding with the deputy head of operations, designing the database and application. We started the development and had a team of 25 people developing that system at the time Drexel went down. We purchased the software, completed the development, and subsequently sold the system—RIMS (Real-time Integrated Multi-product Solution)—to Misys.
In 1992, working on Wall Street, I witnessed Citibank ask their London and New York operations to design and develop exactly the same system. In competition, in parallel. The best solution would be selected and implemented; the losing system would be discarded. The teams undertook their development in deliberate isolation. While I don’t recall the name of the winning solution now, there was considerable effort devoted on both sides of the project and ultimately, the best system won.
In the mid-1990s, I managed the selection and implementation of an investment management system (SS&C’s CAMRA in its younger days) for the Bank of Bermuda. The list of suitable systems was long, the vendors were keen—they fought hard to win our business.
Why am I reminiscing? There was a time—not so long ago—when software vendors and financial services organizations actually developed systems. They had teams of designers and developers; they spent large amounts of money; they produced products that were used, shakily at first, but subsequently very successfully. In fact, the systems we developed then are the systems being used today, particularly at service providers.
Where is that commitment to development now? I will point you to our COO Tom Secaur’s excellent blog “Vendor Consolidation = Vendor Risk.” As Tom notes, an asset manager today wanting to rework their systems and operating model is left with a seriously disappointingly short list of possibilities. If you want to buy, the list is perhaps two or three. If you want to go the service provider route, the choice is maybe four.
As I hint above, my guess is that the majority of the core systems available are probably 15 or more years old. Worse, the reduced number of options means that vendors and service providers now hold the power, not the client. Increasingly, we are seeing vendors and service providers telling clients when they will let the client undertake the implementation, i.e. the “window” in which the service provider will be able to perform the conversion with a start date and timeline set by the vendor/service provider, not by the client.
It’s a far cry from the landscape 15 years ago. Our clients are being shorted: lack of choice with regard to solutions; lack of control/choice with regard to how/when these solutions can be implemented.
Is there a chance that this picture will change? Every day we receive blogs and emails touting the fintech revolution. Billions of dollars in startup investment. Disruptive innovation. Blockchain.
Great. But when are we going to see some of this hype converted into action, with real system development that is useable by the investment management industry?
I hope it is going to be soon. If not, it will continue to be a frustrating time to be a consultant or a client in our industry.
