An Argument as Old as Technology Itself: Buy vs Build
The question of buy versus build is debated in hundreds of wealth management firms across the country every year. While there is merit in building in-house technology solutions across various parts of a business, we believe that when it comes to compliance technology, there is strength in leveraging a commercial solution.
We spoke with Rob Dearman, CEO and Chief Innovation Officer at DCG Insight, and he shares this same opinion:
“I think RegTech is a great example of where it doesn’t make sense to build anything, but the key is in how a connected user experience can be supported for firms who either build a lot of their own technology or who want you to integrate into another third-party platform. This then ties into the level of integrations you can support.”
In this article we’ll explore six of the most common factors around the buy versus build decision and how it applies to compliance technology.
Time to Market
Purchasing an off-the-shelf solution can save time compared to developing a custom solution. The organization can implement the technology more quickly, sometimes in a few weeks, which can be crucial in fast-paced industries where time-to-market and compliance with regulations are competitive advantages.
Total Cost of Ownership
When most firms start the conversation, their analysis is focused on the initial cost of the build-out versus the cost of the commercial product. This is certainly a significant part of the equation. And if the commercial solution is priced on a per-seat model, small and mid-size firms will probably recognize that the cost of buying is cheaper than building. Larger firms, however, may find that they can build the initial product cheaper than they can buy. But don’t forget, the total cost of ownership should be considered broadly and not just the initial cost of software development. You need to look at how much it will cost to maintain your internal system, provide day-to-day support, and keep up with technological upgrades and new features. This is typically where the scale will tip towards a “buy” decision.
Access to Specialized Expertise
In some cases, buying technology solutions can provide the organization with access to specialized expertise or functionality that would be difficult to replicate in-house. For example, cloud-based solutions often provide access to cutting-edge technology and advanced features that would be difficult or expensive to develop in-house. With respect to compliance and regulatory technology, commercial providers often count on a team of domain experts who are dedicated to staying on top of technology trends, the evolving regulatory landscape, and evaluating ongoing feedback from multiple clients.
Customization and Configuration
Building a technology solution in-house allows an organization to develop a solution that’s highly customized to their unique needs and requirements. But it can also contribute to a higher cost of ownership. Highly customized solutions often rely on “tribal knowledge” to know all the ins and outs of the processes. As people leave the organization and the solution grows, potentially high numbers of bugs or defects could become growingly risky. Alternatively, most commercial solutions opt for configurations, which allow for a vanilla version of the product that can be thoroughly and consistently tested with the various configurations turned on or off. This blends the flexibility often found in a custom solution with the stability you expect from a commercial solution.
Competitive Differentiation and Intellectual Property
Developing a custom technology solution can help the organization leverage intellectual property and differentiate itself in the marketplace by providing unique features or functionality that are not available in off-the-shelf solutions. This can be particularly important in industries with high levels of competition. However, compliance technology doesn’t lend a competitive advantage, but rather a strategic advantage in helping the organization grow its book of business and maximize efficiency. The priority is finding a solution that enforces compliant policies and procedures and is easy to use to facilitate widespread user adoption. In addition, there is strength in numbers for firms that leverage commercial products in that buyers will be able to take advantage of continuous improvements that stem from industry and peer best practices.
This is probably one of the strongest arguments presented by those in the “build” camp. As firms’ ecosystems mature there is a higher need for more integrated solutions to support the financial professional and the home office. Typically, solutions built in-house will integrate easier within their own architecture. However, commercial solutions that offer an open, flexible architecture can integrate just as easily, and may even have proven connectors that can connect with common industry components, like commercial CRMs and document storage providers.
There is a third option that sometimes goes unnoticed. Firms that prefer to build their internal solutions could adopt a hybrid approach where they buy a solution that has the right framework and architecture that allows them to build around it. This allows them to put their stamp on the final product while recognizing most of the benefits of a commercial solution, ultimately leading to a lower cost of ownership than a traditional build from scratch. It goes without saying, this approach relies heavily on the integration capabilities of the software that we discussed above, but this is certainly a viable solution to consider.
In summary, we hope that you will leverage this insight as you wrestle with your own buy versus build compliance technology decision. Technology projects are important to the growth and sustainability of any organization, and this topic can certainly influence and affect your firm for years to come.
Since 1992, InvestorCOM has been helping wealth firms and financial professionals meet their regulatory obligations and drive better financial decisions. Our purpose-built compliance technology is intuitive and highly configurable. Our flexible API makes it easy to integrate to any system or process you have in place. Implementations take weeks, not months, and our proven 4-step onboarding process provides our clients with the information and ongoing support they need to be successful.
To learn more about how InvestorCOM can help your firm, contact us to learn more and schedule a demo of our compliance platform https://investorcom.com/demo/.