Wealth management survey finds evidence of uncontrolled IT spending

A survey of wealth managers representing more than $1trn in assets under management has found that the industry faces significant challenges in getting a grip on rising IT costs and the threat this poses to business margins.

This comes as wealth management businesses are also facing rising costs of regulation – via new rules, such as reporting requirements, which themselves are forcing upgrades and adjustments to existing IT systems.

The conclusion is among a number of technology issues highlighted in in the report Technology and operations trends in the wealth management industry 2013, presented by Bruce Weatherill, founder and chief executive of Weatherill Consulting, at Advent Software’s recent Advent Connect London 2013 conference.

The report highlighted 10 key areas affected by the changes in IT demands hitting the wealth management sector. These are:

• Operations and technology investment remains robust

• Weaknesses remain despite a flurry of recent upgrades

• Product providers have a real opportunity for differentiation

• Transformation programmes need to be tracked better

• Regulation is the biggest challenge facing firms today

• Suitability, Fatca and large capital requirements loom large

• System sharing and cultural resistance remain barriers to outsourcing

• More access to management information desperately needed

• The digital revolution is well underway

• Front office and reporting platforms shaping up to be key

In terms of spending patterns, the research suggests about 60% of firms are spending about $5m annually on broad operations and technology systems. However, about 10% are spending up to $50m or more.

Ensuring that regulatory and compliance commitments are met clearly stands out as the key driver of this spend on operations and technology, ahead of costs and enhanced efficiencies. Interestingly, however, fewer than half the survey population said fewer errors was a key goal. And only one in five said that reducing system downtime or supporting organic growth were important reasons.

Regarding specific technology priorities, the research found that few wealth managers were prioritising reviews of core banking systems or core asset management systems. Instead the focus is on enabling clients to access more information and improving client reporting.

Spending on third party software is expected to climb in coming years, particularly in order to support mobile access to wealth management services.

However, the report also notes that there is a question mark over just how much new technology these firms can afford. On average, some 45% of existing technology spend goes simply to maintenance of existing applications.

“Successful wealth managers of the future are seeking to change this split around, reducing and automating the plethora of manual systems in order to free up time and investment to meet new business opportunities,” the report says

One massive challenge is the fact that because of ongoing regulatory changes, systems upgrades have become frequent and therefore expensive. Some 43% of those surveyed have gone through a major systems upgrade in the past 12 months alone. This has left most wealth managers unable to claim they can actually offer best-in-class capabilities – simply because so many are just playing catch-up on the technology front.

“The three biggest areas of excellence were front office – CRM systems, products – trust, and support – client reporting/aggregated statements, but even here only 14% of participants in each case said their current capabilities are best in class.”

Unsurprisingly, then the majority of firms analysed for the results are planning system upgrades in the next three years – despite the fact that some 80% have already made an upgrade in the past five years. The problem here is that while some 64% plan an upgrade or complete change of system by 2016, they do not know at present which technology provider will be able to help them – “the vast majority being unable to differentiate between products very well.”

In other words, wealth managers around the world plan to spend millions of dollars on new IT and systems but do not actually know how to gauge which suppliers or technology products will actually be best for them.

Click here to view a copy of Technology and Operations Trends in the Wealth Management Industry 2013



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