Buy-side prefer front-to-back solution from tech vendors rather than custodians, finds survey

Despite opportunities such as reduced workload, buy-side firms would still opt for a technology vendor over a custodian for front-to-back-office solutions.

A new survey of 100 buy-side operations executives showed the majority of firms would pursue a front-to-back-office solution provided by a technology vendor rather than a custodian.

The 2019 InvestOps report, conducted by WBR and SimCorp, showed that for firms seeking to consolidate their front- and back-office operations, nearly two-thirds would select a solution offered as a platform or a service, while 29% said that they would use a custodian.

“A service offering from a custodian with the promise of reduced workload may seem tempting, but it also puts a significant firewall between you and your data – not something to be taken lightly,” said Terry Flynn, front-office operations expert at SimCorp North America. “There is also a case to be made that the promises of staff reduction or redeployment do not fully materialise.”

A number of custodians and fund administrators have targeted the front-office as a new growth opportunity and expand from its traditional back-office services model. These include State Street and SS&C Technologies and their respective acquisitions of Charles River and Eze Software.

Northern Trust has also gone live with an outsourced trading service for asset owners and asset managers, and plans to further integrate its front- and middle-office capabilities through the launch of a new technology and operating model.

The survey also showed a majority of buy-side firms would consolidate front-to-back-office processing of alternatives and derivatives on to a single platform.

“We would like to see all asset classes, including alternatives, consolidated into a single platform for front-to-back-office processing,” added Dave Winter, head of investment operations, Aberdeen Standard Investments. “This would result in a cleaner data set, fewer breaks within the reconciliation process, and consistency in the data between the IBOR (investment book of record) and ABOR (accounting book of record) which I think is probably the biggest benefit.”