More buy-side firms than you think are moving IT infrastructures and operations to the cloud and then laying off back-office staffs. So says Todd Gottula, executive vice president and chief technology officer for Advent Software. Tighter margins are compelling firms to find efficient ways to “manage disparate systems” and the cloud option is getting popular, Gottula says.
“We’re seeing a wholesale shift from on-premise installations to cloud-based solutions,” Gottula says. “[Buy-side firms] can get some of the technical operations included in the service offering with less people in the back office.”
This shift has been happening “very, very dramatically” over the past three years, Gottula says. Since 2010, Advent has seen its customers shift from 90% with on-premise installations and 10% with hosted or cloud-based solutions to half of current prospects wanting to outsource IT and/or operations to the cloud. “In the financial services community, as you well know, that’s a pretty significant shift so quickly.”
Does that mean back office people are getting laid off because of the cloud?
“You’re seeing two things happen. You’re seeing firms like State Street—which we have a partnership with—setting up outsourcing operations using Advent Software.” State Street offers fully staffed, back office operations services to institutional asset managers. “In that case, yes, if a standalone institutional manager says I no longer am going to run my back office, they are going to let their back office people go and outsource it completely to State Street.”
In this scenario, it’s a matter of scale, Gottula says. Street Street can hire 100 accountants to take on the back office operations and “those 100 accountants can service thousands of accounts.”
But not all firms are taking it to such an extreme. Of the 50% of prospects that want outsourcing—25% want to move IT and operations to the cloud while the other 25% just want to outsource IT, Gottula says.
“Some firms are just saying they want to outsource the technology but still want the people and want the sense of control over data ownership,” the CTO says. “They also want rapid configuration and customization of the information the firm needs. In that case, they’ll come directly to us and we will outsource just the technology and they will have their people using our systems. They just won’t have the hardware and infrastructure in place.”
Gottula says the trend is only going to continue.
“Financial services firms are just following the pattern of every other industry in technology sourcing,” he says. “I think only the most insecure and secretive firms are going to be bringing software in house, and by and large the majority of people will be leveraging cloud solutions for all aspects of financial services.”
Yet all is not perfect with cloud providers as panelists at FTF’s HedgeOps New York conference this week revealed. Without naming names, the panelists report that in the aftermath of Super-Storm Sandy many firms discovered to their horror that cloud providers had not done the data back-ups and disaster recovery that they were expecting. Buy-side firms, the panel says, will have to double up on their due diligence when it comes to cloud providers, especially if Gottula is right about this trend.
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