Demand by clients for greater transparency, efficiency and speed of service is driving IT spending in wealth management, even though budgets are under pressure.
A lack of investment by wealth management firms in IT has been a long-standing industry issue with legacy systems, tactical fixes and manual workarounds hampering performance.
However, increasing client demand for transparency and immediate access to information, combined with a heightened need for business efficiency may be the push firms need to finally invest in next generation IT platforms, figures in the industry say.
After the credit crisis, clients who may once have been satisfied with a quarterly statement from wealth managers now demand accurate, up-to-date and comprehensive snapshots of their total wealth, available at any time of day or night, wherever they are in the world. A paper statement put in the post tomorrow or next week is no longer acceptable.
PricewaterhouseCoopers’ recent private banking survey revealed
that during the financial crisis it became apparent that most
clients required more regular and even real time reporting around
their overall positions. Without this level of functionality,
faxing statements upon request was regarded as simply failing to
meet clients’ needs.
According to Steve Dyson from his eponymous wealth management consultancy firm,Steve Dyson Associates, trust and transparency are key issues behind IT. “Firms are therefore focused on client communications and improving client reporting,” he told WealthBriefing recently.
The increased demand for immediacy and transparency is also bringing the issue of online access to the fore. While many private banks say that their clients are not interested in viewing portfolios or transacting online, research findings paint a very different picture. Merrill Lynch and Cap Gemini’s 2009 World Wealth Report found that online access and capabilities are deemed very important by 66 per cent of clients, but only 32 per cent of advisors – a yawning 34 per cent gap. PwC’s research corroborates this revealing that clients ideally want to view their statements online.
“Those [firms] able to provide such client interfaces through the internet and handheld devices for example, may be able to increase client loyalty and free CRMs to focus on higher value client transactions,” according to PwC.
Coutts is one firm that has enabled clients to transact online as part of its private banking service for some time, recognising that its clients need choice in their relationship with the bank. While the private banker remains central to Coutts’ offering, 24/7 telephony and online banking services are playing a role. Coutts' clients can access their current accounts online, view and make transactions, payments and telegraphic transfers.
"Coutts Online Banking continues to be the popular choice for day-to-day banking transactions, with more occurring through the internet than the other channels combined,” said Phil Allen, head of digital at Coutts.
Coutts is exploring an extension to its service which will enable clients to access their investment reporting online and is also developing a mobile phone banking proposition that will deliver banking services on clients' mobile devices. “This is something we feel our time-poor clients will benefit from hugely, enabling them to access a range of banking services when and wherever they choose," continued Mr Allen.
There is however, an important distinction between the ability to view statements and executing investment decisions online. “It will depend on the clients’ profile,” Mr Dyson said. “I see the transactional side as something that is appealing to execution only clients and for making payments online. I can’t see the attraction to a high net worth discretionary client in the ability to make their own investment transactions,” Mr Dyson said.
Investec Private Bank offers a detailed viewing system for clients through its web site. Its view is that clients want online reporting, but the bank draws the line at transactional capability believing it is not required as each client is different and works closely with their private banker.
However, even straightforward access to up to date statements is
something that the majority of firms still find challenging.
While many wealth managers can now publish online, advanced
systems are rare, as is the ability for clients to access
statements in real time. The accuracy of some statements is also
“Many firms still have legacy platforms propped up with what I call 'Bill Gates finest',” said Mr Dyson, referring to the spreadsheets and access databases many firms use, where older systems are not equipped to handle the demands of more sophisticated portfolio management techniques such as performance attribution and modelling. “While labour intensive, this is not too much of a problem, but appropriate controls are vital,” he said.
When clients want to know their status across more than one account, the problems are exacerbated. According to PwC, aggregated reporting is something that 42 per cent of firms cannot currently provide. Although about two-thirds of these firms plan to offer it in the next two years, nearly all of them need to upgrade their systems to be able to do so, which does not bode well for firms utilising and embracing online functionality any time soon.
PwC also found that while not an immediate concern, online client service platforms will become a top five priority over the next two years.
Although PwC’s research found that chief executives regard use of technology as the weakest element of their organisational capabilities, the long-term investment required to bring systems up to scratch is planned. Two-thirds of COOs plan to increase IT spending in the next two years, 82 per cent are undertaking some form of major core systems upgrade, of which 36 per cent plan to introduce organisation-wide initiatives.
Mr Dyson observes that the “flight to quality” by clients from larger players that have suffered reputationally to independent firms has raised awareness amongst these smaller, often more traditional, firms that they need better technology to underpin their service, particularly on the investment management side.
“They are aware that their platforms are old and that they need to review them. Firms are primarily looking at tightly coupled front to back office platforms and solutions with STP (straight through processing) connectivity from modelling, order management, trading and settlement.
“The ability to know how various fund managers are doing on a continuous basis in order to report accurately to clients has become essential,” said Mr Dyson, who also observes that while firms would like to focus on the front end and client interface, ensuring that IT systems are fit for purpose to meet risk management requirements is perhaps a more immediate concern.
“There is a swell of people looking at the various tools and technology and exploring the various options. They are dipping their toes in the water, but not necessarily committing spend and writing big cheques at this stage,” he said.
It is true that a first class IT and online interface will never replace good relationship managers but these things can enhance relationships with clients and there are clear efficiency gains to be made. PwC found that client managers spend as much of their time on administration and error resolution (16 per cent) as they do on marketing and prospecting (17 per cent) and double the time spent on investment research and analysis.
“From a firm’s perspective, it’s about operational efficiency – the ability to do more with less,” said Mr Dyson, who believes that IT can enhance CRMs' ability and provide a holistic view of the business, including which clients and portfolio managers are most profitable.
Both pull and push factors are influencing a move towards better IT systems as a need to invest to meet client expectations has coincided with firms’ need for increased business efficiency.
Despite the budgetary constraints currently facing firms, continued manual workarounds and shortcuts are a false economy and developing efficient and scaleable platforms that can grow with the business rather than impede it, is the only way to evolve and take wealth management firms to the next stage of their evolution.