I’ve conducted a few Software Certifications lately, and it recently occurred to me that software vendors can generally take two positions, which I simply refer to as:

• to lead, or
• to follow.

And what do I mean by these terms? Well, let’s take a look.

A software vendor’s choice: to lead

Software vendors who lead make most of their design and development decisions themselves, based on what they believe the market and their clients can best use. While they will surely listen to their clients, they see themselves as innovators, who will create an enhancement by anticipating that it will be welcome by their clients and prospects. We might also call this the “build and they will come” approach. It’s a bit risky, yes? What if no one wants it?

A software vendor’s choice: to follow

Software vendors who prefer to have their clients drive their development fall into this second category. They listen closely to what their clients want, and build off of their demands and requests. They will generally avoid adding an enhancement unless there’s a clear demand for it.

But, which approach is better?

This is a difficult question to answer. I recall several years ago a firm developed an after-tax module, fully expecting the demand to be there … it wasn’t. And so, this was a costly undertaking with little benefit.

In the 1980s I was responsible for technology at a NYC-based investment advisor. My posture was to lead. Most of the development we did was based on ideas I had. But, I’ll assure you that I passed these ideas by our users before investing the time to build them.

In some cases, to follow is better, especially when your system is one that lacks clearly defined boundaries or expectations. On the other hand, there are times when we expect vendors to lead.

GIPS composite software … a place to lead

The GIPS(R) standards are quite detailed, and there are today many automated tools available to help asset managers handle their composite maintenance and reporting requirements. When we conduct a software certification for GIPS functionality, there are certain things we expect to see.

Occasionally, a vendor will say “we haven’t developed this yet, because none of our clients have asked for it.” Not an unreasonable statement, at least in most cases. However, when it comes to GIPS, there are a number of functions and features we expect to see, even if no client has yet asked for it. Why? Well, because if a vendor is holding their system out to the marketplace as one that is equipped to meet their composite maintenance and reporting requirements, there are certain things that need to be there.

Levels of GIPS composite software

When it comes to GIPS software, we can divide the market into at least three categories:

• Basic systems: these provide composite storage and return calculations, with little if any automation. This means that these systems won’t do any auto-loading of accounts, auto-removal because accounts fall below a minimum, and no GIPS presentation reporting.
• Advanced: these systems go beyond the basic by providing tools to automatically load and remove accounts from composites, as well as to generate complete GIPS presentations, disclosures and all!
• Supreme: these go beyond advanced, by doing virtually 100% of what’s required, to include calculating all statistics (e.g., firm assets under management, with tests to avoid double-counting), so that there is minimal human intervention.

Spreadsheets might be considered a form of a “basic system,” though it requires more work than programmed systems.

Our preference?

When it comes to GIPS software, we’d like to see vendors lead: to be aware of what’s required, and develop as much as possible. Granted, all vendors must be responsive to their clients’ requests, but I think there’s a lot of benefit from them being a step or two ahead of their clients. But as I did at a prior firm, it’s wise to run these ideas by a group of clients, first, to ensure that what you have in mind will be beneficial. This can be done with words and/or prototypes.

Your thoughts? They’re always welcome! And to learn more about our software certification program (which isn’t limited to software vendors), please contact Chris Spaulding.