TECHNOLOGY IN THE WEALTH MANAGEMENT MARKET – A MAKE OR BREAK CHOICE FOR NEW ENTRANTS
As we’re now more than a year on from its launch, it now seems very likely that one consequence of the Retail Distribution Review (RDR) in 2014 will be the wealth management sector shaken up significantly by a number of new entrants.
We expect to see around 20 new wealth management/consumer-facing propositions launched by the end of this year. They will come in many different shapes and sizes, although most will fall into one of three categories: spin-offs from existing industry players, firms seeking to expand into Europe, and some completely new players. But all will have one thing in common: the success of their journey towards a healthy market share will depend to a huge extent on the strengths and capabilities of the technology platforms they choose to use.
In almost every case, it is true to say that a wealth management company, in common with most other financial companies, will be defined by the technology it uses and presents as its public face to customers. It is hard to exaggerate how important the choice of technology will be for new entrants trying to differentiate themselves in the face of intense competition.
Issues with current technologies in the market
One problem that new entrants, and to a significant extent existing players, in the market may face is that many of the technologies available to companies in this sector are costly, outdated and offer limited capabilities. Firms purchasing such technologies will face an unappealing choice between a powerful but unwieldy software solution with high initial hardware costs, as well as an expensive bill for ongoing maintenance – or a solution with a much smaller footprint that could be a reasonable choice for a new entrant, yet not be scalable enough to provide value for a growing company over the longer term.
Firms should also take care not to be fooled by solutions that boast a new front end that is based on flexible, highly customisable. Net technology, for example – and yet retains the same old back office functionality and architecture underneath. Firms will need to look past the packaging of the software they want to buy to ensure they are not being fooled into buying a legacy system that is simply disguised by an attractive sounding proposition.
In addition, some new entrants will be using older technology because they already offer wealth management in another market – or perhaps in this market, but under another brand. This will restrict the flexibility of a wealth management proposition in part, simply because, in addition to creating, maintaining and growing the different components of the system, the company will need to maintain all the different system interfaces that enable it to function.
The best way to overcome these technology challenges is to invest in a solution that can be constructed using modular components, making both integration and scalability much more straightforward, and one that can be easily integrated with other efficiency-boosting technologies, such as virtualised servers and applications.
It is also essential that the platform should be fit for purpose in a world where most system users and customers will want to be able to access systems or services using tablet computers or smartphones. As such, the technology should be able to automatically format and present interfaces to suit each of the mobile device platforms that a customer or end-user may want to use.
Increasing regulatory burden
Regulatory compliance is now at the top of most firms’ risk management agenda as companies struggle to keep pace with the scale and speed of regulatory change. The key requirements of regulation tend to relate to reporting on and recording of data relating to investment decisions. This means there is a need for effective communication between the different systems from which relevant data is drawn, along with the consolidation of that data to ensure it is managed consistently and effectively. It is alarming to contemplate the potential consequences of using an older platform that is unable to do this – or the high cost of attempting to recalibrate an older system to make it capable of doing so.
The cost of expertise
Of course, some firms may be tempted to simply outsource their technology requirements. However, a full outsourcing solution can be costly, typically 3 times the cost. It may therefore be worth looking for a technology platform that is available on hosted Software as a Service (SaaS) basis, as a good SaaS provider will be able to offer all the technical advantages of outsourcing but at a much more reasonable cost.
Whether a company decides to take the SaaS route or not, it is vital to work with a technology provider that knows and has experienced every aspect of the wealth management market and can understand exactly why the company might want to fine-tune the system in a particular way. Finally, it is also essential to consider the speed at which a new technology platform can be taken from design to implementation. While some providers will need several months to get a system up and running, others will be able to bring the company much closer to live operations within a matter of weeks.
Ultimately, players in the wealth management market, whether new entrants or incumbents, will all have to make important choices about technology platforms. The choices are stark- invest in old technology with a snazzy bolted on front end, outsource the whole operation with high costs or choose new technology now, taking advantage of innovation. If you choose well, opportunities abound. However, if you choose badly, the journey ahead will become even more perilous – and costly.