The keeper of your trading data is ... Amazon?
Advisors ask whether Amazon will enter the wealth management industry. The reality is it already has.
Amazon Web Services hosts data for financial services companies including Morningstar, Betterment, Robinhood and Nasdaq. FINRA’s trading data, with an average of 66.7 billion daily processed records, is also on the platform.
But the financial services industry has been slow to adopt cloud-based solutions.
“I hope it’s not hesitance as much as it is responsibility,” says Kenneth Meyer, head of Deloitte’s investment management cloud and real estate consulting unit. “Responsible organizations are going to do their due diligence whenever they do a major transformation and they need to understand the risk and benefits.”
Radical technology changes can be more complex for wealth management firms than companies in other industries. Financial firms face more regulation, and the sector is more risk-averse, Meyer says. Also, cybersecurity is a top issue for advisors, especially as the SEC says it will crack down on firms with security vulnerabilities and as firms like BlackRock experience data leaks affecting thousands of advisors.
Only 13.5% of investment management firms use the cloud all the time. Another 39.3% are considering the option, but aren’t using it for functions like trading, according to Deloitte research from 2018.
But change is coming. The finance cloud market is expected to grow from $9.89 billion in 2016 to $29.47 billion by 2021, according to a Market And Markets report.
Any firm — even a small RIA — that builds its own website or technology in-house would benefit, says Anil Beniwal, vice president of engineering at Betterment, which stores its data on AWS servers. Beniwal says the cloud has increased security and allowed Betterment to grow faster.
“I think the prime [benefit] is being able to scale quickly,” Beniwal says. “Previous to being on the cloud, if you needed a new server, you had to buy it, wait for them to ship it to you, install it … You can’t quickly change how much capacity you have for customers.”
FINRA says AWS has boosted cost efficiency and security. Validating transactions takes less than a minute, regardless of trading volume. All FINRA’s non-public data is now encrypted, which hadn't been the case before. “It would take the largest supercomputer commercially available more than the Earth’s age to go through half of the possible passwords before unlocking [its encryption],” says Steve Randich, FINRA’s CIO, in a 2018 FINRA podcast. Amazon does not have access to the data itself, says FINRA spokesman Ray Pellecchia.
By using the cloud, a company doesn’t need a specific number of servers, Pellecchia says.
“The number [of servers we use] actually fluctuates day to day, automatically, driven by the volume of market activity,” Pellecchia says. “The cloud accommodates elastic demand, so that a day with 50 billion market events can be followed by one with double that amount, with no human intervention to increase the number of servers.” FINRA is only charged for the servers it actually uses.
This elasticity enables smaller firms to have access to tech and computing power historically reserved for big firms, Meyer says. “Previously, the high-end, high-capacity resources were only available to the largest players.”
Still, adopting new technology takes time. FINRA, which decided to migrate to the cloud in 2014, will finish transferring the last 5% of its data this year.
“It’s more than just migrating your data to the cloud,” Meyer says. “It’s using the cloud as a platform to implement improvements along the way, and it often exposes some limitations and challenges to both data and systems that existed historically.”
Employees also need training on a new system that is constantly being updated. Still, Meyer thinks more investment management firms will migrate. Those that don’t could be left behind when it comes to user experience and access to information.
“I think we will continue to see the rapid growth of what we’ve seen the past two years,” he says.