Markets Media recently spoke with John Adam, Senior Director, Portfolio Management & Trading Solutions at FactSet. What follows is the first part of the discussion, about big-picture aspects of the business. 

What is the state of the financial services / investment business?

The state of financial services is very strong overall. But nothing is static, and the pace of change and disruption is accelerating in our industry. Fortunately, I see very positive signs around that, and here at FactSet we’re very lucky to work with an innovative group of clients who are rising to the challenge.

The trend is for more choice in the market, and more opportunity. I laugh when I read that passive management is going to take over everything and active management is doomed. This is certainly not the case — there is alternative, unstructured data that is much better suited to active management today, for example, and there are new technologies like blockchain and trade automation that make the process of executing an investment idea much more efficient. In the future there will, of course, be a place for passive management and a place for active management.

So overall the business is really in a state of constant flux. Rarely are you ever bored, and often are you surprised at the way industry participants innovate and deliver new services, ultimately in service to the end investor. They’re why we’re here.

On a recent earnings call FactSet CEO Phil Snow highlighted the shift from active to passive as an industry trend. How are you seeing this play out?

The volatility we’ve been seeing highlights the continued relevance of active investing. A sustained bull market makes it harder for the active manager to differentiate as passive performance rises and becomes more predictable; active management tends to do better in periods of volatility as the human touch can seek out and capitalize on more obscure alpha opportunities. That said, whether the market calms down or remains volatile, there is still a trend towards lower fees. While there’s always going to be a segment of the market that’s willing to pay a premium for premium service, any manager who charges more than the minimum amount charged by a robo-advisor needs to justify that cost.

Active managers have an incentive to bring their own costs down and bring their fees down. One way to do that is to introduce a passive fund or an ETF. Another way to do it is to make the process of active investing, the portfolio lifecycle, more efficient and integrated. Every time a portfolio manager has to calculate a risk model at a FactSet workstation, export that spreadsheet into their siloed OMS, and then manually click buttons in that OMS to get the order into the EMS — they’re losing time in getting their idea to market. So we’re working on bringing greater efficiencies and integration to the portfolio lifecycle — in terms of process, cost, and integration with the ecosystem — to help our active manager clients.

Indeed there are challenges. It would be naïve to say there isn’t fee pressure on our clients. But there are opportunities to innovate and differentiate by making the investment process more efficient.

Talk about the battleground that is the desktop of financial services/trading professionals. What does it take to get, and stay, on this precious real estate?

It’s an integrated world we live in. To be on the desktop, and to be successful on the desktop, you have to have interoperability and a broad view that goes beyond a single application. This is why we have spent so much time integrating order management and compliance with execution management. You can’t be a silo, and more importantly, you have to be open.

We’re proud that all of our applications within portfolio management and trading solutions not only interact with one another, but also interoperate with other FactSet solutions, such as our analytics platform, and third-party applications. Look, nobody is going to take on a wholesale, simultaneous replacement of every aspect of their front office technology stack. So what does that mean? You have to integrate and be open to most effectively serve our clients and ultimately, the end investor. So even though we have our own order management solution, for example, we happily work with others in the space.

It’s an open world. I think the biggest change in the last five years is in the expectations and the standards of our end users — to earn a spot on the desktop, you must not only be rock solid, you must also be an open platform that integrates with the world around it.

 

NEXT IN PART 2: THE PAST, PRESENT AND FUTURE OF FACTSET TRADING SOLUTIONS