Is It Time to Switch Your Portfolio Management System?

Another important area to evaluate is how your staff will interact with the product. This area is frequently under-evaluated and is often the root of why a particular system fails to be effectively implemented at a firm. Even simple items like the process for initiating new clients, to the steps required to update cost basis can make an impact on the staff. The fact is systems operate differently, and there can be a variety of opinions about the most efficient process to accomplish a task—even if the end result is the same. Producing quality performance reports is important, but the number and difficulty of the steps required to produce said reports is just as important. Therefore, be sure the actual users of the system have a strong voice in the decision-making process. And better yet, have the users create a checklist of the 10 to 15 most common processes currently in place at the firm and run each one using the prospective portfolio system. The more testing and involvement your back office staff has before the purchase, the bigger the dividends will be when you actually install the new system.

Although not the most glamorous part of evaluating a new system, the quality of the data processing is an area that requires close attention as well. The look and feel of the performance reports is essentially irrelevant if the system has issues with processing account data. The place to start is in evaluating your system's ability to interpret data provided by the custodian. Having a custodial data interface available is not enough. You should ask questions in regards to the number of advisors using the interface and how long the interface has been available. This is important because data interfaces take time to reliably build and deploy. Creating a data interface is more an art than science. Be sure to review how unique data entries will be processed between the data interface and the portfolio management system. For example, if you know what a particular issuer's corporate action event is (one of the more complex events in an investment account) and you can see the system handles it correctly, you can gain some level of confidence that it will address other events as well.
The cost to purchase the system is just the beginning. Another possible expense is converting data from your existing system to the new system; be sure to make it a part of your evaluation. The challenge for advisors is to ensure costs alone do not drive the ultimate decision. In the portfolio management system product space, there are a number of providers with a wide range of different features and functionality. In addition, there are outsource solutions, Web-based, desktop and various flavors of overall support and service. These variables can dramatically affect cost. I recommend you consider systems in a range of costs. Don't solely evaluate the least expensive or, for that matter, the most expensive systems. Give a good look at several systems at multiple price points. You will greatly improve your chances of selecting the best system for your firm, rather than the best price for your firm.

A new system is similar to the purchase of a home. Your goal is to be happy with your living conditions, without feeling the need to again move. When you own the right home, it makes everything else a bit easier. The same is true for your portfolio management system. Therefore, take the time to give any new system a complete evaluation. Over the years, I've heard success stories and not-so-successful stories from advisors with new portfolio management systems. The difference between the two is how well the advisor evaluated the system beforehand, minimizing any potential surprises after they wrote the check.    

Dan Skiles is the executive VP of Shareholders Service Group in San Diego. He can be reached at [email protected].