Bill Hortz's picture

"At our firm, we recognize that it is more than just buying the right technology."  Kirk Littleton, Ultimus Fund Solutions 

 [The Institute for Innovation Development interview series invites innovation experts, innovative business leaders and emerging fintech companies to talk to our readers about their latest innovation activities. The series seeks to learn from innovative business creators, uncover innovation best practices, and discover how to apply these insights into a financial services business model.

We recently sat down with Jason Stevens, Chief Technology Officer, and Kirk Littleton, Head of Middle Office Services, for Ultimus Fund Solutions - one of the largest, independent mutual fund service and middle-office technology providers for RIAs in the country. We asked them to share with us their perspective and their evolution with technology trends affecting money managers and the financial services industry.]


Hortz:  Jason, as Chief Technology Officer, what do you see as major pain points for financial advisors and the financial services industry?

Jason:  Well, I consider these three areas to be major concerns:

Transparency versus security – Clients want data influx - to be able to see and access their data when, how and where they want it.  They want transparency and flexibility with their data, but they also want security. Some typical data delivery methods include hard copy, secure email, or FTP, which while all secure, are also not very flexible.  The problem is that many data providers have been hesitant to open up and expose sensitive data as it exposes them to risk. We find the solution is in partnering with fintech and other technology vendors who are trailblazing data flexibility and web/cloud interfaces across all their products, while emphasizing the security of this data as a core foundation to their service.

Regulation – From a development standpoint, with the expectation of ongoing changing regulation, service providers and investment advisors need to put in place ways to be nimble with their data to meet new regulatory rules or requests. Without that data flexibility, we are plagued by highly inefficient, time-consuming, expensive options and “chunking through data” to be able to meet regulator requests.

Staying forward thinking – With technology constantly evolving and changing, it’s important to keep an eye on trends and new technologies across the industry.  This is true both when exploring external technology products as well as in-house solutions.

Hortz: Can you talk about your point on data flexibility a little further?

Jason:   More often than not, data is coming from multiple sources/systems.  If these systems are not properly integrated, it becomes very difficult to bring the data together in an efficient manner for reporting or data delivery.  It is even more difficult to make changes to these data outputs and reports.  This results in a very inflexible environment, making it challenging to meet client requests in a timely and effective manner.  The goal is to meet client needs for data. Provide them what they want, how they want it, mixing and changing report parameters, the ability to really manipulate and analyze data – that is aggregated, integrated, stored, accessible - so when a client says they need data in a certain format, or range, or report, it can be delivered. 

Kirk: We’re all familiar with the phrase “It’s all about the data”. Unfortunately, far too often an advisor’s investment accounting system becomes their de-facto data repository for their mission critical investment data. These legacy accounting systems were developed 20+ years ago and were not designed to provide the type of reporting that today’s advisors and their investors expect and demand.  Think about what is happening in this industry, the millennials who all grew up with Xbox, smart phones and social media are not happy with traditional methods of receiving investment information (hard copy or PDF statements delivered via email or to an FTP site).  The next generation investor is looking for information to be delivered via advanced web portals, tablets and other mobile devices (iPhone or Android). If they can’t pinch it, swipe it, or tap it – they aren’t interested.  Investment advisors who are not working on a better digital experience for their investors are going to be left behind. Our focus, as a service provider, is to perform all of the core middle office processing (trade capture/settlement, investment accounting and reconciliations, daily performance, etc). We then store this rich investment data in an enterprise data repository where it can be combined with other market data such as investment analytics, market prices, and benchmarks.  Our data management and reporting strategy has been specifically designed to meet the diverse data demands and reporting requirements of the advisor’s front office, their investors and the regulators.

Hortz: Can you explain the type of technology and processes needed for data flexibility?

Jason: A key way to accomplish being flexible with your data is through having a well thought out and executed API (Application Programming Interface) strategy. How do you get applications, and their different data sets, to talk to each other? Once you have that, then there is no limit to what you can do with the data.  More and more applications are providing open APIs which allow you to access, enrich, and integrate the data across sources to meet client needs.  This has become an important new skill set for any business, to be able to develop a strategy to integrate these APIs into your internal technology and out to your external client offerings.

Kirk:   At our firm, we recognize that it is more than just buying the right technology. We need professionals with Jason’s skill set to focus on making the technology work efficiently within our operations.  After buying and implementing the technology components, we also needed professionals who are adept at moving data quickly and efficiently from one component of our technology landscape to another and to our client’s front office decision support systems.  Any advisor who has built an internal middle/back office operation will attest that these technology professionals are essential to keeping the operation running smoothly. Ultimus’ value proposition to our clients is that we will take care of the technology infrastructure, investment operations, and build the right technology stack to support that so that they can focus on investment performance and growing their business.

Hortz: So what are the problems or difficulties in moving in this direction?

Kirk:  On the one end, the very large advisors who perform their middle and back office functions in-house and the large administrators who service these types of advisors are spending tens of millions of dollars and years of technology development to transform their massive operations from accounting-centric to data-centric. A level of bureaucracy coupled with the shear-size of these firms and the massive amounts of data to be managed has made this transformation very expensive and time consuming as they often result in multi-year projects for these advisors and administrators.   On the other end, as an agile, independent service provider, Ultimus has been able to acquire and implement a comprehensive data management platform in months rather than years.  Our clients are able to avoid the large capital and time commitment required to transform their operations to the data centric model required to stay competitive while also meeting the demands of the regulators. This positions our firm well to provide comprehensive middle and back office services to small and mid-sized managers with under $20B AUM.

Hortz: How has this commitment and expense in technology changed your company and services?

Kirk:  This investment has allowed Ultimus to expand our services beyond our core mutual fund services and open up a new frontier - to provide comprehensive middle office services to our clients who offer separately managed accounts and private/hedge fund products.  It is our belief that if the $100billion+ advisor can benefit from an outsourced middle office, then an outsourced middle office can be a real game changer for the under $20billiion advisor.  Historically, there have been few if any administrators offering middle office services to small or mid-sized advisors. Consequently, these advisors were forced to hire a few operations professionals and acquire their own technology (most often an Advent based accounting-centric solution).  This operating model has been in place for many years but several factors are driving firms to look at outsourcing their middle office, like the consolidation of available accounting systems into one large technology/services firm, investor demand for better reporting and for SOC1 certified operations, and the need to shift operating cost from fixed to variable.   

Jason: We basically have evolved as a firm by responding and moving with technology. Our strategy is two-fold:

Work with best in breed tech vendors – Many companies buy technology too quickly or find it easier to work with one or two vendors for all their technology needs.  This leaves companies with either technology that doesn’t perform as well as it was sold, or forces them into poor performing applications that were cross sold by the same vendor.   While this may result in well integrated applications, it often leaves a company with underperforming applications.  When Ultimus buys technology, we look for tech companies that we can partner with, to work with us on our client’s data, leveraging their technology. We spend time identifying best in breed vendors and applications instead of relying on one or two for our technology needs.  Our existing API strategy allows us to do this through data access and integration.  What we strive for is selecting the best vendors/applications to support our clients while not losing any flexibility or connectivity to the data.

Expand and strengthen our internal development capabilities - We now have an internal development team, headed by myself as the chief technology officer.  We are managing data, creating new delivery channels, integrating systems and applications so data can communicate, identifying gaps in vendor systems and building satellite applications to surround them.  At the same time we are communicating, providing feedback, and collaborating with our technology vendors to fill any gaps, add new features, and improve our overall offering with their products.  Our technology vendors are partners in all of this with us.  The stronger they and their products are, along with the ability to collaborate and work together, the better we can service our clients.

Hortz: Kirk, in building your middle-office services, how do you go about picking the right fintech companies and technology to work with?

Kirk:  As you sift through the growing number of fintech companies it can be very daunting just trying to figure out what business function they serve. I recently attended a conference with over a hundred fintech companies exhibiting and I made a point to speak with the representatives of almost every firm. This is my 32nd year in this business and I can tell you that after talking with these firms about their capabilities, I found that while many have very innovative solutions, it would be very hard to ascertain the best in each class of technology without an extended due diligence process.  Also, there were several firms that seem to have built a technology solution for which I could see no real problem.

I suppose the message that I am trying to convey is that, perhaps, the time has come for advisors to rely on a central, reputable service provider who is committed to providing the most innovative technologies; building the right, integrated, easy to access, technology stack; and hiring the most talented tech professionals so that you can focus your time and energy on your investment performance and gathering and retaining assets.

Hortz: Jason, as a CTO, what would you recommend to advisors on how to best determine and pick the right technology vendors for their needs?

Jason: When exploring external technology vendors and products, advisors need to do their research.  Do not make a decision based solely on a product demo, marketing materials, etc.  Know that you are going to sit in on a demo that they have practiced and practiced to look slick and it works absolutely perfectly because they took the data that they know works and built it into their demo.  Early in my career, I would look at a vendor demo that looks slick and almost immediately be sold. It’s very difficult to weed out the tech vendors that are going to work with your data.  So you have to dig a lot deeper. Ask for references and search out other firms using the technology.  Be prepared to ask a lot of questions.  Make sure the technology can integrate with your existing applications where needed and ensure the interface is user friendly enough that people will and can use it to its full potential.  Another thing I suggest asking about is the API (which provides the ability to interact with the application).  How can you get to the data and integrate it with your existing technologies?  Enabling your technology and data to interact and talk to each other is key when designing an overall tech strategy for your company. 

Hortz: Thank you gentlemen.

This interview was previously published on FA Magazine Online

The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines). For more information click here.


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