Buyer’s Remorse: When New Tech Causes Novel Headaches

Broadcom is allegedly demanding that Fidelity pay an estimated additional $136 million per year for server-software licenses that have formed the backbone of its systems for nearly two decades. If the world’s third-largest asset manager refuses, Broadcom has warned it will cut off Fidelity’s access to the software three days before Christmas.

Fidelity sued Broadcom to block the tech vendor from cutting off service, which could be disastrous for Fidelity, the firm argued in the lawsuit Fidelity filed in November.[…]

Not exactly “It’s a Wonderful Life,” but it has raised questions about the due diligence firms are doing before hiring tech vendors, whether the realities of the services match the sales pitches and the amount of power firms cede to tech vendors when licensing their products, according to multiple consultants that advise financial firms on tech issues.

Between cloud computing, artificial intelligence and new operational tools for increasingly complex fund vehicles, most financial services firms are upgrading their technology stacks. More than 70% of financial-sector workforces now have access to GenAI technologies, for example, according to a September report by Boston Consulting Group.

Many appear to be entering deals expecting the technology to be the answer to all their problems but regretting the results after the fact, said Jeff Hooks, relationship manager at STP Investment Services. “I find it quite fascinating that some of what I think are basic questions are not necessarily answered on the front end.”

Hooks from STP recently got a call from a client that outsourced most of its tech to a vendor that seemed like a good fit, but hasn’t panned out well, he said. But the contract they signed is active for another year, so the firm is handcuffed to the service provider for another year, Hooks said.

It’s likely that the Fidelity/Broadcom situation could serve as an example for why firms outsourcing their tech need to make sure they can live without any one specific vendor, Hooks said. It appears that Fidelity has built core functions around Broadcom’s technology over the past couple of decades, he said.

Read the full article in Ignites.