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