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Smarter, Better, Faster Part 2: The Problem with “Best-of-Breed”

Welcome back to our three-part series: Smarter, Better, and Faster Investment Accounting, authored by Kirk Littleton.


To achieve a smarter, better, and faster accounting system, investment firms need an approach that recognizes the vital importance of both technical innovation and human collaboration. 


In part one of this series, Kirk dove into how investment accounting can be made smarter and more efficient by leveraging sophisticated data capabilities. Data has an undeniably vital role in the digital evolution of investment accounting — but how, exactly, is that data employed in operational processes? 


If you haven’t checked out Part One yet, make sure to give it a read first, as today FundGuard’s Kirk Littleton is expanding on the topic of real-time data and its use in investment accounting. Specifically, this second part of the Smarter, Better, Faster series discusses the use of best-of-breed solutions within the investment accounting function  and why the point-solution approach is actually creating inefficient data and operations silos.


Part 2: Best-of-Breed Applications and the Problem with Bespoke Accounting Systems

For years now, a clear push toward customer-centricity has coincided with the digital transformation movement among asset managers and their service providers to deliver the best possible methods for meeting customer expectations and achieving digital innovation while also maintaining affordable operations. 


In the past, the best approach to this challenge was to establish best-in-class systems  across different investment operations: investment decision-making, performance measurement, risk management, accounting, etc., followed by layers of bespoke best-in-class capabilities within each vertical function, e.g., for different asset classes, jurisdictions, etc. This approach may still be appropriate horizontally across investment operations, but within function-specific verticals, particularly investment accounting, the fragmentation creates unnecessary silos and inefficiencies that hinder rather than help digital transformation efforts.  


As a result, we must consider an alternative to point solutions and adopt a more modern approach.


The Limitations of Best-of-Breed Solutions for Investment Accounting

Applications for investment accounting have historically been divided by asset class. For instance, one application may exist for stocks, bonds, and exchange-traded derivatives. Meanwhile, another application is in use for more complex derivatives — and another application for managing bank debt, and then another application for private equity, and the list goes on. 


With this approach, firms end up with a primary accounting system alongside bespoke accounting systems for each subdivision of every asset class, creating a web of applications that are only loosely connected, if they are connected at all.


In turn, generating insights via the primary investment accounting system can become overly complicated. This type of bespoke system must be essentially tricked into reflecting the positions of other security types to compute the total net assets and exposure of an investment portfolio. 


Although this method of investment accounting may have once been effective — especially during times when comprehensive digital solutions were not yet widely available — bespoke systems are now becoming an outdated model for accounting that cannot scale with most businesses’ levels of growth. 


The need to process all asset classes and the underlying data of each asset type highlights the necessity of more modern software development models that can unify rather than divide a system. Fortunately today, the modernization of software has reshaped how investment firms can now handle accounting. Innovative technologies like cloud computing, artificial intelligence (AI), and machine learning (ML) have drastically transformed the entire software development process involved in accounting. From testing and validating to deploying updates and building new products, the wind has shifted when it comes to how investment firms are leveraging accounting software. 

Dealing with IBOR while Transitioning Away from Best-of-Breed Apps

As we touched on in part one of this series, simplifying your business’s data environment can greatly reduce the cost of managing several different data repositories. 


However, this simplification cannot happen overnight and must begin first with determining new solutions to replace the current myriad of Best-of-Breed investment accounting applications with a single accounting system for all asset classes. 


Throughout this process, investment firms must still maintain their Investment and Accounting Books of Record (IBOR and ABOR) and potentially even update their system to a more unified IBOR/ABOR solution. This makes the process all the more complex, as investment firms must consider how to consolidate their accounting systems onto a single engine with as minimal downtime as possible on the client side. 


Of course, the key trade-off here is that the implementation of a single solution for IBOR and ABOR can significantly boost operational efficiency and cost savings. 


To meet this challenge of dealing with IBOR and ABOR while simultaneously consolidating your accounting infrastructure’s bespoke systems into one unified tech layer, three key factors must be considered: 


  • Improved Deployments: The first and most crucial consideration is how to update applications and integrate them into a new unified platform with as much efficiency and accuracy as possible. Old-school software deployments are clunky and lack flexibility, whereas modern cloud-based deployment strategies — such as FundGuard’s blue-green deployment — can make the entire process simpler while also reducing overall downtime. 
  • Rollback Strategies: Depending on how reliant your firm is on Best-of-Breed investment accounting applications, significant developmental effort may be required to reimagine these applications as part of a unified system. During this transitional period, it is critically important to keep in mind a strategy for software rollbacks in the event that a deployment does not go as planned. This is yet another factor that can benefit from modern strategies like blue-green deployment that utilize multiple development environments to keep applications up and running at all times. 
  • Seamless Integrations: The third factor to consider when it comes to shifting away from Best-of-Breed investment accounting applications is how to enable seamless integrations of various applications. To address this factor, the solution lies in adopting an investment accounting platform that can serve as a single layer of truth with access to real-time data from all applications. 

Why Platform Solutions are More Advantageous for Investment Accounting

Platform migrations are becoming the norm not just in investment accounting but across all functions.

Cloud-based platforms offer several major advantages over bespoke accounting systems, including:

  • Continuous Deployment: Any time your business makes changes to its software and digital systems, it is essential to have a strategy in place for keeping these systems up to date and functioning properly. Cloud-based platforms have the ability to maintain flexibility and scalability throughout the deployment process, even going so far as to enable continuous deployment via multiple development environments. 
  • Improved Workflows: The ability to improve your internal workflows (be they automated or manual) is an excellent advantage of a unified platform solution for investment accounting. The unification of your bespoke applications combined with a centralized source of data ensures you have a real-time source of knowledge that is always up-to-date on the latest changes to a portfolio. Plus, these improved workflows can help improve internal communication as well. 
  • Multi-Book of Record: In today’s diverse and ever-changing investment landscape, the ability to maintain a multi-book of record — which can include both ABOR and IBOR — is vital for gaining a real-time overview of accounting records. The right platform can enable an investment firm to leverage a multi-book of record, ultimately helping to further unite the back, middle, and front office operations while significantly reducing operational costs. 

Adopting a Unified Platform Solution for Investment Accounting

The modern realm of investment accounting relies on real-time knowledge and integrations.

As a result, investment firms can no longer support multiple different accounting systems divided by asset class. These systems must be unified to process all asset classes throughout their full life cycles. 

At FundGuard, part of our core mission is to provide asset managers and their service providers with the processing power needed to process all asset classes from a single layer of truth. 

Our platform offers a cloud-native investment accounting solution that includes critically important functions for maintaining a multi-book of records from a single source. The FundGuard investment accounting platform solution empowers asset managers to:

  • Lower operational costs without sacrificing innovation
  • Incorporate and integrate new asset classes with greater ease
  • Achieve unparalleled speed and efficiency 
  • Leverage continuous deployment and a blue-green deployment strategy
  • Maintain scalability during times of high growth

Though Best-of-Breed applications have undoubtedly earned their place in the history of investment accounting, the time has come to adopt a more modern and flexible approach. 

With the support of FundGuard, your business can not only delight customers with greater cost and operational efficiencies but also focus on building better applications that suit your customers’ needs and demands.  

Get in touch with FundGuard today to book a demo of our investment accounting platform solution.

Make sure to join us next time for the third and final part of this series, where we take a deep dive into the key challenges investment accounting technology must overcome in the next few years — and how FundGuard can help your firm clear this hurdle for good.