All the buzz about cloud computing has many financial advisors perking up their ears and wondering how cloud computing can benefit them.
Cloud computing is simply defined as access to processing power from a virtual source. You never interact with it, your applications do. The cloud enables you to take advantage of on-demand network access for a shared pool of resources, eliminating the need to have extensive document storage on your personal computer.
Cloud-based applications for financial advisors can offer many benefits, including:
- Access anywhere there is an Internet connection
- IT management isn’t required
- No software needs to be installed
- No hardware other than your usual workstation
- Instant upgrades are immediately available at users’ fingertips (versus the older method of needing to buy and download the newest software)
Not All Clouds Are Equal
Advisors should note that not all types of clouds are equal. There are two distinct types of cloud computing: shared clouds and private clouds. The main difference between a private cloud and a shared cloud is that the vendor using a private cloud is in complete control of the performance of its Web-based applications with one mission: to supply its customers with a uniform level of service. In a shared cloud environment, one vendor’s application can affect the performance of another vendor’s application.
This is an important distinction for financial advisors to understand because they are dealing with critical client data that requires a certain level of performance. In private cloud environments, in periods when processing power usage goes up, such as during quarter- and year-end reporting, the vendor can apply more or less processing power based on anticipated demand. In technical terms, the vendor has a sufficient amount of rack space to provide consistent service even when demand is at its highest level.
Software as a Service (SaaS)
An important distinction when considering Web-based applications is the difference between private cloud computing, as described above, and Software as a Service (SaaS). SaaS is not simply a desktop application that is hosted in the cloud. Rather, it is a multitenant, shared usage environment. Multitenancy refers to a single instance of the software running on a server, serving multiple client organizations (tenants). The software application is designed to virtually partition its data and configuration, and each client organization works with a customized, secure virtual application instance.
SaaS offers lots of scalability, rapid development and rapid deployment. Generally, SaaS vendors charge an annual subscription fee and provide free upgrades. System maintenance, updates and backups are automatic and instantaneous, rolled out to the entire user base all at the same time, while desktop application providers are hamstrung by lack of scalability, since all upgrades have to be delivered one at a time.
Furthermore, in most cases, desktop application providers require you to give them access directly to your internal data infrastructure so that they can log in and do software updates, run installs, etc. That means that you’re essentially allowing someone from outside your firm full access to your server farm and client data, thus creating a potential security issue.
Security in the multitenant environment tends to be superior because the vendors are professional technology companies, rather than software providers. They have hundreds, maybe thousands, of clients who are asking them tough questions about how their data is stored and secured. With this type of scrutiny and demand, their survival depends on cutting-edge security and foolproof server up-time.
A Word of Caution
When selecting SaaS vendors, be sure that you understand their data center and infrastructure. Someone could say they’re a SaaS provider and just have a server in their closet. Look for a vendor that has invested in the infrastructure to the point where they have top tier network security. They should protect your data for both applicational security policies and data encryption, while still allowing you to fully access your data and integrate it with the other applications.