Relationship Managers Drive Investment in Wealth IT

Emma Rees 30 July 2007

Relationship Managers Drive Investment in Wealth IT

In the much discussed war for talent, WealthBriefing asks how much of a factor platforms and IT systems are in recruitment and retention of wealth managers.

In the much discussed war for talent, WealthBriefing asks how much of a factor platforms and IT systems are in recruitment and retention of wealth managers.

Perhaps unsurprisingly in an industry historically plagued by legacy systems, tactical fixes and workarounds, recent research by benchmarking research firm ComPeer in association with WealthBriefing found that wealth management staff were critical of their employers’ IT platforms.

Ian Woodhouse a director in the private banking arm of Ernst & Young says:

“Traditionally wealth managers have not found it easy to invest in IT because wealth management is the IT guy’s nightmare. Compared to retail it requires high functionality and low volume rather than low functionality and high volume.”

Steve Dyson senior vice president, European business development at IT consultants Citisoft acknowledges that investment in IT is not as straightforward as just stumping up the money and says that wealth managers with legacy proprietary systems are unsure how to get to next generation of IT platforms:

“They don’t know what will happen when they unplug and move to the new system, which can be a major headache. Although the cost/income ratio might already seem too high, it is always best to look at an IT system strategically to produce something efficient and scaleable that can grow with the business rather than impede it.”

Recent reports identify a sea change in attitude towards expenditure on IT in wealth management. PwC’s Global Private Banking/Wealth Management survey found that there has been a quantum shift in the importance placed on IT, with wealth managers investing heavily to achieve differentiation and profitability. Thirty per cent of chief operating officers admitted that their IT systems were not fit for purpose and needed heavy investment.

Industry experts say that firms have no choice but to concentrate on regulatory imperatives such as those imposed by MiFID, but the next biggest area of investment in IT is ensuring that clients are happy and CRM’s are optimised in their jobs.
Alison Malton, Compeer’s managing director, hasn’t seen a big jump in spend by UK wealth management firms on IT in 2006:

“They invested heavily in 2004 and 2005 and now it’s about making what they’ve got work. Firms are now looking more to driving the benefits of the systems they have invested in by tailoring them and changing staff behaviour and working practices.”
Merrill Lynch and Cap Gemini’s World Wealth Report 2007 said that financial services providers will have to significantly improve and update their IT to provide a more dynamic client servicing model and enhance data capture, knowledge gathering and analysis.

However, an efficient IT platform is also about meeting clients’ needs in a more practical sense and ensuring that relationship managers are equipped with all the information they need to have a holistic view of the client at the earliest opportunity with timely, accurate and up-to-date information and the ability to effect transactions for them whenever and wherever they are in the world. This is not always as easy as it should be according to Mr Dyson:

“It is not uncommon for a private banker to receive a call from a client and have to use all their talent to assimilate information from disparate systems, sometimes on four or five platforms. There is a real art in keeping the client talking and making it all appear seamless.”

Whereas traditionally private bankers used to stay with a firm, today’s staff “merry go round” in the wealth management industry makes investment in IT essential:

“When CRMs move from A-B, they want to know why they haven’t got the systems they had at their previous firm”, says Mr Dyson. “Talent and infrastructure are inextricably interlinked and it is short-sighted to invest in one but not the other. Efficient systems will enhance a good CRM in looking after more clients – vital in an industry where there is a dearth of talent.”

Mr Woodhouse points to the scarcity of CRMs and the high price required to secure them, meaning that wealth management firms need to “recapture the premium” by providing them with the necessary product tools to do their job in the most efficient and effective way. According to ComPeer, it seems to be working:

“Our research shows that between 2002 and 2006 average portfolios per professional in the UK have increased from 89 to 139 and average revenue has increased from £207,000 to £442,000”, says Ms Malton. “In the same time period, IT spend has nearly doubled, up 86 per cent.”

Chris Gant, head of wealth management at Cap Gemini agrees that CRMs are increasingly looking to IT platforms as a factor in their decision as to which firm to work for:

“Remuneration is still a major factor, but if they are looking at the medium to longer term, other factors such as brand and platforms come into play. They understand that with better tools, they are likely to be more successful.”

So as clients become more international and sophisticated and products more diverse and complex, what impact is this having on IT investment?

According to Mr Woodhouse, technology is becoming more important in the context of keeping relationship managers informed due to increased complexity as products such as hedge funds, structured products and derivatives become commonplace.

As wealth boundaries widen, there also has to be a portability of information to meet client needs:

“They are more savvy and want to see a snapshot of their position there and then – not receive a paper copy in the post tomorrow”, says Mr Dyson. “There is more need for real time information as clients are now investment bankers and entrepreneurs and are used to a dealing room environment and seeing financials in a more graphical sense, with portfolio management, distribution, benchmarks. Data needs to be robust and internet processes up to scratch. You do not want to air your dirty linen in front of clients.”

Where Mr Dyson sees that there is more pull rather than push by clients where information is concerned, with clients wanting the ability to pull off stats and debate them with their private banker and that the lines between discretionary and advisory are blurring, Ms Malton sees a different picture:

“Our research seems to indicate that newer wealth is not as focused on the internet as one might expect and there is not a great demand for online reporting among high net worth clients. Many entrepreneurs are too busy running their own businesses and often provide their wealth managers with a discretionary mandate.”

Mr Gant sees IT becoming a polarising issue in the wealth management industry, with the more traditional private banks placing much less emphasis on technology than their newer, more aggressive counterparts:

“The industry is predicated on strong relationship management and advisory based relationships. More traditional private banks still operate in that way and are less dependent on technology in the way they drive their business. These firms rely on increasing share of wallet with existing clients and referrals. Their growth strategy is based on leveraging existing relationships and performance. They appear less ambitious about searching for new clients in an aggressive manner,” he says.

“Investment in technology plays into the hands of the bigger players as they can afford the investment in IT and they have the scale to make it work.”

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