Open technical architecture is the key for implementing Roboblock. When portfolio management systems are integrated and the information exchange is fluent, counterparties have more options to set up their service model towards the end client.
Closed peer-to-peer model
When two financial institutions agree on a model to manage their end clients, it is called a peer-to-peer model. Two portfolio management systems would be synchronized with each other so that the relevant information is continuously up-to-date.
The division of work could for example be that the portfolio management company (Company A) agrees to handle client portfolios using model portfolios, settlements, trading, and reporting on behalf of a financial institution (Company B) that would handle client relationship management and sales. When a new client is acquired, their information is automatically transferred from Company B’s system to Company A’s system. Company A would then use its own facilities to manage the client portfolios, and all the relevant information (portfolio, transactions, securities…) would be continuously updated in Company B’s portfolio management system. The information exchange is closed and secured between the two companies. Data synchronization is handled on the system level using secure Application Programming Interfaces (APIs).
The Peer-to-peer model can also be extended so that Company B has many alternative portfolio managers in addition to Company A. Also, the portfolio manager (Company A) may be handling multiple sales channels (in addition to Company B). This would in fact result in a many-to-many model even if information exchange is still peer-to-peer.
Open network of advice exchange
Lighter versions of a peer-to-peer model could be a setup that facilitates the exchange of model portfolio information only. With this setup, the portfolio manager (Company A) would not know any details related to the end clients. The financial institution (Company B) would be responsible for managing the client and its portfolios, but using model portfolios provided by Company A. The portfolio manager (Company A) would only be responsible for managing individual model portfolios and their content, potentially also taking the view of (or making investment decisions related to) overweighting or underweighting different components. Company B would have more responsibilities versus a closed peer-to-peer model: settlements, trading and reporting. The information exchange would still be implemented using APIs, but instead of synchronizing all the client related information, only model portfolio information would be synchronized. The key to success with this model would be the flexibility and openness of the underlying portfolio management system and its APIs.
About the author
Juha is the founder of FA Solutions and has a background both in the financial sector and in software development. He is focused on developing modern and agile solutions for investment management globally.