What Is Investment Management Software?

Banking technology is complex. Many of the largest banks and financial institutions in North America operate on a unique collection of financial applications, legacy systems, powerful programming languages, and modern digital platforms—all carefully integrated over decades of investment in core infrastructure. Apart from retail banking software and term deposit software, it’s arguably one of the most critical elements of a core banking system: investment management software.

Investment management software is a core banking technology subsystem designed to help banks, financial institutions, investment firms, and credit unions manage and oversee investment portfolios. This software streamlines various investment-related processes, from investment planning and trading to analysis and reporting, providing a comprehensive solution for managing financial assets from stocks, ETFs, bonds, and mutual funds to tax-sheltered investment plans.

Users can use the platform to open accounts, administer plans, buy and sell securities and financial assets, track performance, manage risk, and handle compliance. The software is particularly useful in automating routine tasks, providing real-time insights and access to financial markets, and helping organizations meet regulatory standards—all critical in an industry where access, performance, and data accuracy are essential.

In this blog post, we’ll summarize why banks need investment management software, explore how these systems work, and discuss the different types of investment accounts they support. We’ll also highlight the essential features of investment management software and explain the differences between non-registered and registered investment accounts. Finally, we’ll look ahead to the future, touching on the importance of application programming interfaces (APIs) and exploring how emerging technologies like artificial intelligence may shape the next generation of investment management solutions.

Why Do Banks Need Investment Management Software?

People turn to banks and financial institutions for many reasons, but at the heart of it all is one simple idea: A financial institution is the safest place to put your money. Whether clients are building up their savings, buying a home, or planning their financial goals, banks and credit unions are often the first stop. Beyond being safe, these trusted institutions provide opportunities with access to financial assets, investment options, and expert advice—all of which can help grow a client’s wealth. However, with thousands of clients and countless portfolios to manage, financial institutions must rely on technology to efficiently oversee these investments at scale.

This is why banks need investment management software. By centralizing critical investment management tasks, an investment management system offers a streamlined platform for banks and financial institutions to manage portfolios with precision and efficiency. From onboarding new clients, setting up portfolios to tracking transactions, reconciling accounts, and monitoring investment performance, this software helps institutions ensure that investments align with their clients’ short- and long-term financial goals.

With automated compliance reporting, risk analysis, and trading, investment management software also helps institutions reduce errors, eliminate redundancies, and make smarter, faster decisions. With these simple automations, financial professionals can focus on higher-value work and the things that really matter—like providing unique advice, building strategic investment plans, and nurturing customer relationships through personalized financial services.

Ultimately, investment management software doesn’t just keep financial institutions organized—it empowers them to deliver more effective, efficient, and personalized services, making it a key component of modern core banking infrastructure.

How Does Investment Management Software Work?

Investment management software generally acts as a central hub for managing all the tasks involved in overseeing client investment portfolios, bringing together data, automating workflows, and offering tools that allow banks and financial institutions to manage investments smoothly and accurately. But not all software is created equally.

Depending on the system, investment management software can be a specialized subsystem within a core banking application, a fully standalone application, or a point solution with limited investment book of record (IBOR) functionality that integrates with pre-existing systems and external third-party applications through an application programming interface (API). Apart from modern APIs, these systems may also use other technologies for integration, like file-based transfers where data is exchanged through batch file uploads and downloads using Secure File Transfer Protocol (SFTP). Despite their differences, these systems ultimately perform many of the same tasks, consolidating data, automating operations, and providing real-time insights that enable banks to efficiently manage portfolios and investments for a wide range of client needs. They help streamline complex investment operations, while meeting both client needs and regulatory requirements.

So, how exactly does investment management software work? The software walks banks and financial institutions through a process that makes it easy to onboard clients, set up investment portfolios, execute trades and orders (stocks, ETFs, mutual funds, bonds, etc.), monitor portfolio performance, and rebalance portfolios based on asset allocation.

Let’s explore the workflow process in a little more detail.

Here’s how investment management software typically works:

1. Client Onboarding: The process starts with bringing a new client onboard. Investment management software allows banks to create new customer profiles, providing an integrated workflow that ensures the proper information is collected. This ensures legal and compliance checks like know your customer (KYC) and anti-money laundering (AML) are completed. Information about the client’s financial goals, risk tolerance, and investment preferences is captured at this stage.
2. Data Integration and Portfolio Setup: Once the client is onboarded, the software integrates data from multiple sources. Client profiles, account details, and pre-existing data provide a comprehensive view of the client’s investment needs and financial goals. From here, financial advisors can begin to set up client investment accounts, plans, and products. They can build personalized portfolios, aligning asset allocations with the client’s needs, ensuring that investments reflect their financial objectives and risk tolerance.
3. Trading and Management: As financial advisors work with their clients to make investment decisions, the software automates the execution of trades, ensuring that they are completed accurately and efficiently. Trades are processed with minimal manual intervention, reducing the chances of errors and delays.
4. Portfolio Monitoring and Rebalancing: The software continuously monitors portfolio performance in real-time, tracking changes in the market and comparing them to the client’s investment strategy. If performance deviates from predefined targets, the system triggers rebalancing recommendations or sometimes automatic adjustments to keep the portfolio aligned with the client’s goals. Automated rebalancing can help protect clients from excessive risk, especially during market fluctuations.
5. Compliance and Risk Management: Throughout the lifecycle of client portfolios, investment management software helps ensure financial institutions remain in compliance with relevant regulations established by regulators, such as the Office of the Superintendent of Financial Institutions (OSFI) and provincial securities commissions. The software automates critical compliance reporting tasks, minimizing manual errors, maintaining a comprehensive audit trail for compliance verification, and adhering to regulatory mandates.
6. Reporting and Insights: In addition to regulatory reports, over time the software provides both clients and financial institutions with transparent, real-time or periodic reports. These reports give insights into portfolio and investment performance, market trends, and compare client portfolio growth with market indices, helping financial advisors offer informed guidance to ensure their clients stay updated on their investments.
7. Advisory Services: The software’s reporting capabilities can also provide data-driven insights help provide personalized advice. Whether it’s suggesting adjustments based on market conditions or financial goals, the investment system supports advisory services by giving banks the tools and information they need to deliver better services.

In summary, investment management software works by automating and streamlining key tasks in a logical, step-by-step process—from onboarding clients and setting up portfolios to monitoring, rebalancing, and ensuring compliance. This workflow helps financial institutions operate more efficiently and make more informed decisions, ultimately improving the client experience by optimizing portfolio performance and creating tailored investment portfolios.

Different Types of Investment Accounts: Non-Registered vs. Registered

We’ve explored how investment management systems work, but understanding the types of accounts these systems support is just as important. Investment management software is designed to manage both registered and non-registered accounts, each of which includes various types of investment accounts suited to different financial needs. Let’s break down these categories and highlight some of the key account types that can be managed on these systems.

What Are Registered Accounts?

Registered accounts are investment accounts that are registered with the Canadian government and offer specific tax advantages and incentives. Also called tax-sheltered accounts, these accounts are popular for long-term investing, especially for retirement, as they provide tax-deferred or tax-free growth.

Here are the main types of registered investment accounts in Canada:

• RRSP (Registered Retirement Savings Plan): One of the most common registered accounts, an RRSP allows individuals to save for retirement with tax-deferred growth. Contributions are tax-deductible, and taxes are paid only when funds are withdrawn, typically in retirement when the individual’s tax rate is lower.
• TFSA (Tax-Free Savings Account): A TFSA allows individuals to save or invest money and withdraw it tax-free. Unlike an RRSP, contributions to a TFSA are not tax-deductible, but earnings within the account grow tax-free, and withdrawals are also tax-free.
• RESP (Registered Education Savings Plan): An RESP is designed to help save for a child’s post-secondary education. Contributions are not tax-deductible, but investment income grows tax-deferred, and the government may contribute additional grants, like the Canada Education Savings Grant (CESG).
• RDSP (Registered Disability Savings Plan): An RDSP is designed to help parents and individuals save for the long-term financial security of someone eligible for the Disability Tax Credit (DTC). Contributions are not tax-deductible, but the plan offers tax-deferred growth, and the government may contribute through matching grants or bonds, making it an attractive option for those with disabilities.
• FHSA (First Home Savings Account): The FHSA allows first-time homebuyers to save up to a specified limit, combining aspects of an RRSP and a TFSA. Contributions are tax-deductible, and withdrawals (including any investment growth) used to purchase a home are tax-free, making it a powerful tool for home ownership savings.
• RRIF (Registered Retirement Income Fund): An RRIF is a registered account that converts RRSP savings into income during retirement. Funds in an RRIF must be withdrawn annually, and the withdrawals are taxed as income.
• LIRA (Locked-In Retirement Account): A LIRA holds pension funds for individuals who have left a company’s pension plan. Unlike an RRSP, funds in a LIRA are “locked in” and generally cannot be withdrawn until retirement, except under certain circumstances. It can later be converted to a Life Income Fund (LIF) or a similar retirement income option.

What Are Non-Registered Accounts?

Non-registered accounts, on the other hand, do not offer the same tax benefits as registered accounts. These are flexible investment accounts that can hold a variety of assets but do not have the same restrictions or advantages when it comes to taxes.

Common types of non-registered investment accounts in Canada include:

• Individual Accounts: These are personal accounts held by an individual investor for saving or investing. There are no tax advantages, but they offer flexibility, and there are no withdrawal restrictions.
• Joint Accounts: A joint account is held by two or more individuals, such as a couple, who share equal ownership of the investments. Joint accounts are typically non-registered, though joint registered accounts like joint RRSPs also exist in some cases. Taxes are paid on investment income, and all holders are responsible for reporting their share.
• Corporate Accounts: These accounts are used by businesses to invest surplus funds. Corporate investment accounts allow businesses to grow their assets, but the income earned is subject to corporate tax rates, which may differ from personal tax rates.
• Taxable Investment Accounts: Taxable investment accounts are similar to individual accounts but are specifically used for investments that are subject to taxation. These accounts may include equities, bonds, mutual funds, and other taxable investment products.

Ultimately, registered and non-registered accounts each offer unique advantages tailored to specific financial goals. While registered accounts often provide tax incentives and are designed for long-term savings, such as retirement or education, non-registered accounts can sometimes offer greater flexibility without tax-deferred or tax-free growth. By supporting both types of accounts, investment management software helps financial institutions meet diverse client needs.

4 Key Benefits of Investment Management Software for Banks and Credit Unions

Investment management software offers a wealth of advantages that make it indispensable for banks, credit unions, and other financial institutions. By providing a unified platform to manage client investment portfolios—sometimes through a combination of integrated solutions that handle different aspects of the investment management lifecycle—these systems streamline operations, enhance client service, and drive efficiency across the board.

1. Streamlined Operations and Efficiency: By centralizing and automating key investment tasks, investment management software enables institutions to optimize their workflows and reduce operational overhead. From client onboarding to portfolio rebalancing, the software minimizes manual intervention, reduces errors, and allows financial professionals to focus on higher-value work. This operational efficiency translates into significant cost savings, faster transaction times, and improved scalability.
2. Enhanced Client Experience: Investment management software empowers financial institutions to deliver personalized, client-centric services. With tools that provide detailed insights into individual client needs and market conditions, advisors can create tailored portfolios, offer data-driven recommendations, and ensure each client’s investments are optimized to their goals. The result is a more engaging and rewarding client experience, building trust and long-term relationships.
3. Improved Risk Management and Compliance: The regulatory environment in the financial sector is complex and constantly changing. Investment management software helps institutions stay ahead by automating compliance processes, maintaining comprehensive audit trails, and performing real-time risk analyses. Automated alerts and compliance checks enable institutions to respond quickly to changing regulations and ensure adherence to Canadian standards, such as those set by the Office of the Superintendent of Financial Institutions (OSFI) and other provincial regulatory bodies.
4. Real-Time Insights and Analytics: Access to real-time market data, portfolio performance metrics, and comprehensive analytics is crucial for making informed investment decisions. Investment management software aggregates and analyzes data, providing actionable insights that enable financial professionals to respond dynamically to market fluctuations, rebalance portfolios as needed, and align investments with changing market trends.

The Role of APIs and Cloud Infrastructure in Investment Management Solutions

As the financial industry evolves, so too does the technology that supports investment management. To meet the growing demands of Canadians and financial institutions, investment management software is increasingly leveraging cloud infrastructure and Application Programming Interfaces (APIs) to offer more flexible, scalable, and integrated solutions. These innovations are enabling even smaller institutions to access powerful investment management capabilities without the need for extensive IT resources through the deployment of point solutions.

Cloud-Based Solutions Offer Scalability and Flexibility

Cloud-based deployment or cloud banking is revolutionizing the way investment management software is used across the financial sector, particularly as a core banking application. By moving to the cloud, financial institutions gain access to highly secure and scalable solutions that can grow with their needs. The cloud provides a more cost-effective way to manage investment portfolios, reduces IT infrastructure costs, and enhances data storage and security. This flexibility allows institutions to respond to market changes quickly, deploy new features seamlessly, and ensure their systems remain up to date with the latest advancements in financial technology.

API-Driven Integration Can Streamline Customization

APIs are making investment management systems more customizable and create interoperability with other financial technologies. Through API-driven integration, financial institutions can create or connect point solutions tailored to their specific needs, without having to replace their entire IT infrastructure. For smaller institutions, like Canadian credit unions, this means they can easily implement an investment management system that integrates with their existing platforms, making it possible to leverage advanced tools and features without significant upfront investment. APIs provide a way to connect different financial systems, enabling seamless data exchange and improving operational efficiency across multiple platforms.

Looking Ahead: The Future of Investment Management Software

As technology continues to evolve, so will investment management systems. There’s no doubt that artificial intelligence (AI) will play a powerful role in personal investing in the years ahead as trusted investment management software expands to provide more powerful personalized investing experiences.

In the coming years, AI may play a crucial role in automating portfolio management, improving risk analysis, and driving smarter investment decisions. While AI applications in investment management are still developing, they hold the potential to significantly enhance how financial institutions manage assets and respond to market conditions, offering an exciting glimpse into the future of investment management solutions.

For more information on Portfolio+, including its API and investment management capabilities, cloud-based banking solutions, or its core banking system, contact us today!

Sources:

https://www.investopedia.com/terms/k/knowyourclient.asp  (Retrieved November 7, 2024)

https://www.investopedia.com/terms/i/investment-management.asp (Retrieved November 5, 2024)

https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/registered-investments/registered-investments-1.html (Retrieved November 6, 2024)

https://www.investopedia.com/terms/u/unregistered-account-/-nonregistered-account.asp (Retrieved November 7)