FEATURE: Moving On From Legacy Technology Systems In Wealth Management

Eliane Chavagnon Deputy Editor - Family Wealth Report 22 October 2013

FEATURE: Moving On From Legacy Technology Systems In Wealth Management

Most wealth management firms are still deploying capital in a “fragmented fashion” when it comes to addressing technology issues, Al Chiaradonna of SEI Wealth Platform tells Family Wealth Report.

Rising regulatory requirements and associated costs, among other developments, have made wealth managers more aware of how technology can help alleviate the pain. A recent SEI study points out, for example, that advisors who must manually handle market and client data causes a big drag on firms' revenues.

Rather than relying on various systems for individual processes, The Legacy of Legacy Systems, the SEI report, urges firms to use a single platform for product distribution and client data management, and it warns against the use of technology “quick fixes” in particular.

However, most firms are still deploying capital in a “fragmented fashion” when it comes to addressing technology issues, Al Chiaradonna, senior vice president, SEI Wealth Platform, told this publication in an interview.

Indeed, the RBC Wealth Management/Capgemini World Wealth Report 2013, published earlier this year, acknowledges that “given the complexity and regional variation of regulations, many firms take a tactical compliance approach by addressing requirements in a one-off manner," he said.

Such insights come at a time when there continues to be debate about what is the most efficient approach wealth management firms should take in handling issues like technology upgrades and replacements, particularly when sensitive client data is at stake. For example, a client might have just acquired new technology or be in year one of a several-year contract. They may also have concerns about implementation and integration costs, disruption to clients, and the pace and degree of change.

Chiaradonna said the latter can be “hard to put your arms around from a financial perspective and is challenging in some instances to put your arms around it from an emotional perspective.” Factors to consider on this point include 1) managing change 2) minimizing end-client disruption, and 3) understanding clients from a segmentation perspective beyond size of wallet. He noted that a pressing business issue such as bleeding cash flow will usually dictate the speed at which clients want the change to occur.

Re-examining legacy

Through its Wealth Platform offering, SEI provides wealth management firms with technology infrastructure, administrative support, and wealth processing services and wealth management programs. The platform permits trading and transactions on 104 stock exchanges in 45 countries and 33 currencies.

The US firm works with clients by taking an inventory of all their “disparate” technology systems to ascertain what it costs to run them and what the contract terms and dates are. An agenda is then drawn up, outlining which aspects would, or should, go under a unified platform. The cost of customization is correlated with two main things, Chiaradonna explained: development coding or an amount related to the cost of integrating systems.

But concerns about security have escalated in recent time. According to the 2013 FOX Family Office Benchmarking: Technology in the Family Office study, for example, security worries - which apply both to data itself and how it is communicated - are now mentioned just as often as integration.

“The angle we’ve taken…is that we believe all data is not created equal,” Chiaradonna said. “Certain people need certain access to certain information and should have that based on roles and rules inside the organization. The unified nature of a platform and the centralization of that data I think does enhance the opportunity for cleaner, more accurate data, and therefore perhaps less compliance and regulatory bumps.”

As outlined in this year’s World Wealth Report, investments in CRM, reporting, process automation and risk management are all necessary for achieving compliance. “Process design and execution (e.g. on-boarding) is an important part of the client experience as well as wealth manager productivity and retention,” it says.

“What we’ve done from a compliance and regulatory perspective is put the opportunity in the hands of the financial services entity to decide who has access to what information,” Chiaradonna said. “I believe a number of regulatory and compliance issues manifest themselves as people try to navigate between disparate pieces of technology, meaning people can’t keep control over where the information is, let alone who has access to it.”

The current picture

Chiaradonna estimates that, in the US, around 80-90 per cent of wealth management firms today are operating off legacy-based technology systems. But based on his observations over the past 12-18 months, “we believe things are all changing,” he said.

“Budgets are freeing up. If that [the percentage of firms operating off legacy-based systems] were confirmed, I’d say about 30-40 per cent of the market right now at least, from our perspective, is in active dialogue [regarding the concept of a technology infrastructure overhaul].”

Meanwhile, other industry studies suggest that wealth managers in the US are more tech-savvy and thus target a leaner business model than their global peers. Firms in North America are “making significant investments in core processes and technology as reflected in substantially higher operations and technology budget forecasts”, according to a summer 2013 PwC study entitled Navigating to tomorrow: serving clients and creating value.

“The US market tends to be driven by investors that are more technologically savvy and demanding,” added Ryan Hicke, also a managing director for the SEI Wealth Platform.


When asked exactly what types of technology systems are typically included in the term “legacy infrastructure,” Chiaradonna said he has seen as low as about 35-40 and as high as about 65-70. They include CRM packages; financial planning tools; portfolio and trust accounting systems; portfolio management; Microsoft application practices; and all underlying hardware.

So in terms of how long it might take a firm to migrate its current technology infrastructure onto a single platform solution, Chiaradonna said that - for those who treat the transition as a “technological augmentation” or “quick fix” approach - you’re probably looking at three- to six-month windows.

“But if you are really embracing the concept of the ‘legacy of legacy systems,’ and you want a unified enterprise platform - a single structure - then the journey takes longer,” he said.

“You can be on our new solution in between six and nine months if you want to be at the ‘open for business’ model, meaning all new business can come on to the platform and you can transfer your legacy business at the pace you want. If you want the full transition to move the legacy business all at the same time and you want to move the data and synchronize the systems and rationalize the technology, that can range from on average a 12-13 or 13-18 month time frame. The difference between the two, in our experience, is the level of customization/integration you might want to have," Chiaradonna said.

“Your choice is around client segmentation and how you box your offering.”

Client demands

According to SEI’s latest paper, a growing number of wealth management clients would like to be in charge of their finances and want to interact with professionals to help them with their more complex financial requirements.

“Yes, they [clients] want the next best technology, but they want it to augment the human capital…they don’t want it to be replaced. I think there is this desire to say ‘I want a more robust relationship that integrates technology and my advisor,’” Chiaradonna said.

And the first issue that relates to the notion of “co-piloting” is the desire for “always on, always accessible information,” he added.

“Always on always accessible used to be as simple as ‘can you report it?’ Where we are moving right now is not just the report, or access of it, but ‘I might want to transact’ - not just in a brokerage fashion, but interacting with people. Clients want experts on hand and they want to be part of the process by which decisions are made.”

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