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Technology > Marketing Technology

The Technology Coach: Don't Get Lost in the Cloud

By Dan Skiles

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Cloud computing has attracted a significant amount of attention in the advisor community. Understandably so, since it offers plenty of advantages for businesspeople who have to deal with lots of data every day. So what is it? While definitions vary somewhat, look at it this way: if you want to expand your computing power, but don’t want to buy new servers or hire IT people or license new software, you can use the “cloud,” the many resources available on the Internet itself, to get that extra power. For the etymologically curious, know that the term “cloud” came from drawings of computer networks where a picture of a cloud typically represented the Internet.

As consumers, we actually are quite familiar with cloud computing, since most of us use some form of a cloud-based system every day, or many times each day if we own a smart phone. For advisors, until the past couple of years, there really weren’t a significant number of cloud-based systems to consider. Today, however, if you are considering a new portfolio management system, contact management system, or a trading or imaging system, a cloud-based system will most likely be included in your evaluation process. Products like Tamarac, Redtail, Black Diamond, and MoneyGuidePro, just to name a few, are all cloud-based systems. During your evaluation process, it is important to consider several different perspectives that will influence the benefits the “cloud” provides compared with a locally installed system. These items include reviewing your core technology needs as well as the potential impact on your overall operations and structure. While it is true that cloud-based systems provide several benefits over locally installed applications, the challenge is ensuring these benefits will ultimately be realized by your firm. Asking the right questions will help you determine if a cloud-based system is the appropriate solution for your firm.

Right from the beginning, cloud-based systems offer a number of potential immediate benefits. For many advisors the initial benefit is the expected reduction in hardware and infrastructure costs versus purchasing a locally installed application. This would also include the disaster recovery benefits, given that the system is located at a remote data center. For brokers leaving wirehouses for the independent life, this is an easy benefit to realize since most “breakaway brokers” generally do not have any systems in place when they decide to go independent. They have the luxury of selecting from many new technology solutions, most of which are cloud-based systems that were not even available several years ago. However, for established firms that already have a number of locally installed applications (that are not being replaced), then this initial benefit might not be realized if you add a cloud-based system into the environment. Therefore, one of the first areas to start when evaluating a cloud-based system is taking a complete inventory of your existing systems. Depending on your current environment, your infrastructure costs might not go down at all if you add a cloud-based system. In fact, in some unique circumstances, your support infrastructure costs could even go up. If your broadband connection isn’t large enough for the additional data requirements necessary to support the new cloud-based system, you could slow down the performance of other programs that are vital to your business.

Another important area to consider when evaluating cloud-based systems is integration opportunities with other systems utilized by your firm. In most advisors’ offices, integrated systems lead to significant efficiency gains and ultimately improve scalability as the practice grows. For example, many portfolio reporting systems now “talk” fluently with CRMs and trading programs. The growth of trading programs like Tamarac can in part be attributed to their initial focus on leveraging the reconciled account data in portfolio management systems. (For more on the integration opportunities afforded by cloud systems, see sidebar, next page.)

People, Transition Costs, and Exit Strategy

The current and future staffing needs for your firm should also be a consideration as you evaluate cloud-based systems. The technical and operational skills necessary to effectively utilize a cloud-based system are different compared with running a locally installed system. Operating a portfolio management system is a good example of the different skills needed with each environment. Locally installed portfolio management systems generally require a staff member to be responsible for processing and reconciling the account data, as well as maintaining the overall software environment (upgrades, version control, etc.). With cloud-based portfolio management systems, having a staff member responsible for these items is not normally a requirement. Part of what you are paying for is the cloud provider fulfilling these responsibilities. However, managing the relationship with the cloud-based provider becomes more important because of the work that you have outsourced. Much more of the communication for running your portfolio management system is conducted through e-mail and the telephone versus walking down the hall to speak with the staff member responsible. Understanding this one difference between the two environments should assist you in evaluating your staffing needs. Which role do you have on staff today? If you are operating a locally installed portfolio management system today, consider how readily your staff can adjust their responsibilities if you decide to switch to a cloud-based system.

Know What You’re Getting

Evaluating the overall switching costs is another critical area that must be addressed prior to selecting a cloud-based system. There are costs involved in switching to any new system, no matter whether you are moving to a cloud-based system or something locally installed. However, with a cloud-based system you will usually have the advantage of easy access to the program. It shouldn’t be required for your IT person to set-up each workstation. Another switching cost to factor in is your staff’s time to learn the new system. There will likely be a period of decreased productivity during the early stages. Over all, identifying the switching costs for the initial transition should not be too complicated. The more difficult challenge is identifying the switching costs if the system does not meet your needs for the long run.

A final but often overlooked factor in evaluating a new cloud-based system is how easy it is to part company. Be sure you understand what you actually own or what you have the right to keep if you decide to leave the provider. Your client data is probably your number one consideration, but there are other items that are important as well depending on the product. With a cloud-based contact management system, for example, custom-designed reports and workflow processes tailored to your firm would also be important to retain if you decided to switch to another provider. Finally, make sure that you understand the structure and form of how these items will be provided to your firm. Just knowing that you are receiving the information is not enough: it needs to be in a usable format that you can potentially convert to other systems.

Most important in your evaluation, make sure that meeting your overall business needs is the primary driver in selecting new technology for your firm. Cloud-based systems certainly present new opportunities in meeting your business needs, especially now that there are multiple providers in each product category to consider. In the portfolio management system category alone there are a number of cloud-based systems–Black Diamond, PortfolioServices, AssetBook, and Orion, to name just a few. However, whether your next technology purchase is cloud-based or a locally installed system, it is easy to get caught up in the “promise” of technology and over-estimate the benefits. Try to focus on what you can really use in your office today, and consider any new enhancements as extra benefits–just remember those benefits will probably carry some extra work. Challenge yourself to really consider how your future business needs might change, especially as you continue to grow. Behind every firm that enjoys scalable growth, there is a technology solution that is a key component of achieving this goal. Cloud-based systems simply offer another choice for you to consider in reaching this goal.

Dan Skiles is the executive VP of Shareholders Service Group in San Diego. He can be reached at [email protected].

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