Drought ends for technology providers

After a period of five years where technology providers found the pickings slim in global wealth management, the appetite for solutions is picking up, particularly in Europe and North America. Budgets appear to have been allocated by many of the major European private banking houses for 2005 onwards to upgrade their systems, according to research by IDC.

The IT spending trend in Europe is consistent with activity in North America. Recent research in the US published by Celent indicates IT spend in wealth management will surge by an average 5-10 per cent as firms seek to build out their capabilities.

The most common complaint of IT solutions in the past has been that private banks have either bought systems or been party to broader group solutions that have never fully been in tune with the requirements of a high-touch client business. Many even felt that the basics of customer relationship management were not open to them in the packages that they installed, while communications between legacy systems was next to impossible. Crucially, very few of the solutions were in tune with the working practices of the relationship manager.

Moreover, the costs for amendments to these solutions were often so prohibitive in a downward market that a number of firms froze development entirely.

Modular solutions

The difference this time around appears to be that the major IT giants have accepted that the “one-size-fits-all” approach will be roundly rejected by most in the market. Indeed, even the likes of Siebel, EDS and Sunguard are coming back to the market with modular solutions and have teamed up with specialist firms regionally to construct cost effective offerings around both the back and middle office as well as, vitally, the front office client relationship tools.

The key initial battleground for market share for most IT providers is in the front-office solutions – particularly in the field of financial planning and account aggregation services. Specifically, banks are seeking front-office solutions that can be offered (or at least displayed) to the end HNW client.

A key factor for the breakdown between the IT and wealth management from 2000 onwards was a lack of mutual understanding of the forces at play in the two industries. IT vendors typically wanted big long-term contracts while wealth managers sought swift short-term solutions.

Further, from the viewpoint of the IT vendors, providing sufficient after sales support services and training was limited, which meant that the adoption of new solutions was a slow process.

The result of the freeze has been that software vendors of all sizes are now adopting a much more client-centric approach to selling their solutions. This empathy-led approach to sales appears to be opportune as private banks worldwide are coming out of the cold in terms of investing in development.

Crucially, most of the leading private banking houses accept that they need to introduce better front-office solutions as they strive for improved distribution channels and as clients become more technically proficient.

Sebastian Dovey is managing partner at wealth management strategy think-tank Scorpio Partnership

‘IT spend in wealth management is set to surge by 5-10 per cent in the US’
Sebastian Dovey, Scorpio