Oakbrook Solutions

As Oakbrook Solutions engages in integration or system interface related projects we continue to run into the same “green screens” on client site. Although some areas have created front ends to mask the underlying technology, major changes are sometimes needed in integration or interfacing work that is done behind the scenes. The need for resources with skills around “old” technology is ever apparent but is it time for financial institutions to consider major shifts in technology platforms?

We all know the ROI on the change could be difficult to justify but the benefits of the move could be realized over time. As the US workforce ages, so does our clients ability to replace “hands-on” experience. As a niche consulting firm, Oakbrook Solutions understands the value of this type of knowledge and experience. That said, migrating to new technology can be accomplished with the right leadership, focus, and execution.

Is it time to begin the migration?

Contributing author: Tim Buhler, Senior Relationship Manager

Our industry has been through several significantly challenging times recently with market swings and volatility. Is it over?

Given recent events related to natural disasters and the potential downgrading of US Treasuries by Moody’s, it may not be over. A better assessment may be that this is life, as we know it for the foreseeable future.

What does that mean to Wealth Management technology leaders? It means that the ability to continue to operate effectively with large market events may separate the ultimate winners from the ultimate losers in our industry. The larger the firm, the bigger the challenge to support large market events. If an unpredictable event happens – how will you react? The wrong reaction (or lack of one) could mean the firm will suffer significant financial exposure.

So, what is a firm to do? Here is a great place to start:

• Increase visibility
  • How many senior managers really know how many transactions, trades, or processing events happen daily, weekly or monthly? Not many.

If asked by executive management what would happen if “X” happened, most could not even tell what happens daily, weekly, or monthly. The data and tools exist to increase this information flow to management – it should be budgeted for, the project executed, and the information provided.

• Scenario Modeling
  • Once a baseline of daily activity is determined, do some “war room” like modeling to socialize what could happen. What if the investment management group decided to do a massive move from equities to foreign bonds? What if a mutual fund company was found to have some financial problems? What if US treasuries are downgraded? What volumes of transactions can your operations and technology infrastructure support? If volume concerns are identified, then do some volume testing to determine where limits are.

• Action Plans
  • Based on lessons and socialization of scenarios build action plans that:
    • Correct any short comings of existing infrastructure
    • Build management tools to alert management of extraordinary or potential problems that could surface – try to be proactive, not reactive.
    • Determine key, trusted individuals that would be consulted during a market event and form a critical event team that meets periodically with specific defined roles. When the event happens, use that team structure and organization to have your responses to management ready before they ask for them. The most important thing this shows – leadership!

The ability to incorporate these key ideas into action plans may be the first step in keeping a firm one-step ahead when our industry is challenged with these unpredictable events.

Be prepared for life…as we know it.

Contributing author: Craig Cook, President Oakbrook Solutions

I think there has been a profound change in investor sentiment regarding how they invest. Over the past decade, investors have experienced 3 calamities, which call into question the beliefs that formed the basis of their entire investment philosophy:

a) the tech meltdown, which over a decade later still has NASDAQ at levels 50% below its highs;

b) the housing meltdown, which by most accounts is the worst crisis in residential construction since the great depression; and

c) the financial meltdown, which has left the broader stock market indices, unchanged in 10 years

so, high tech, housing, and stocks in general do not engender confidence.

Computer hardware and software, the Internet (do you think that will last?) as well as, related products and services were valued in the early 00’s because it was believed that these factors would forever change the algorithm that existed between labor and capital. It was expected that these innovations would yield productivity increases, the likes of which have never been seen, and have a profound effect on corporate profits. Productivity growth has been strong but even the Internet could not re-write the laws of physics, so stock prices in high tech and Internet related stocks fell. Belief One – productivity gains resulting from the Internet and technology will change the way the world works – not quite.

I remember my father’s frustration with the fact that his youngest son rented his living space. He felt that I was making a big mistake by not building equity in a home. Today, my father, even though he has passed away, would be angry with lots of people. For the past 5 years the number of people renting has increased by about 700,000 per year while the number who have chosen the path of home ownership has fallen about 200,000 per year. It seems to be a rational decision if you look at the returns on housing investments over the long term – they are negligible. Belief Two – buying a home is a good investment since real estate always goes up – not quite.

Stocks over the long term go up. Evidence suggests that this is true if you have a pretty long time horizon. Since the end of the great depression, the return on the S&P has been about 6% annualized. What has changed is our notion of long term. More of us are Keynesian’s now who believe that in the “long run we will be dead,” so our time horizons have been significantly shortened. Belief Three – stocks go up in the “long term” – not quite given our time horizon.

So, how should investment professionals service the investor who now struggles to believe in anything? It seems in these perilous times that the only way this relationship can survive is if it grows closer. An advisor needs to understand their client’s way of being in the world if they hope to truly offer advice and counsel that helps them regain confidence. One way we have seen our clients try to enhance this relationship is by implementing and expanding the Trust Services they offer. This holistic type of arrangement allows an advisor to understand their client’s life at the level of detail necessary to help them achieve their objectives.

Contributing author: George Village, PhD