UK WEALTH MANAGEMENT 2010

Transcription

1 UK WEALTH MANAGEMENT 2010 Delivering more business value from operations and technology Sapient Industry Benchmarking Series UK Wealth ManageMent 2010 Delivering more business value from operations and technology 1

2 UK Wealth Management 2010 Delivering more business value from operations and technology 2

3 TABLE OF CONTENTS 1. Introduction and background to the survey Executive summary Evolution of infrastructure Technology cost allocation Levels of scalability Budgets Strategies Future state Key issues and actions About Sapient s Wealth Management team UK Wealth Management 2010 Delivering more business value from operations and technology 1

4 UK Wealth Management 2010 Delivering more business value from operations and technology 2

5 1. Introduction and background to the survey We are pleased to bring you the first in a series of operational and technology surveys commissioned by Sapient to better inform our clients of trends and issues affecting their industry sector. Our survey forms part of a series that underlines Sapient s commitment to the financial services and commodities sectors. The results of the survey provide direction and recommendations that will help our clients identify, consider and resolve their current operational and technology challenges. We would like to thank the survey participants for taking part in the survey questionnaire, as well as providing additional detail and insights in the follow-up interviews and round table discussion event. The ten participants included a number of global Wealth Management firms, some large national players, as well as some smaller growing institutions. We believe this mix represents a good crosssection of the industry, providing a comprehensive insight into the operational and technology issues that Wealth Management firms are faced with and their responses to them. The survey objectives are to: i. Examine the operations and technology issues of Wealth Management firms in the UK. Wealth Management was selected as the first of our surveys, as Wealth Management is an industry that must undergo major change and is projected to grow over the next few years. To address trends revealed in the survey, the Wealth Management industry will face a number of challenges and will need to consider business model changes. The challenges have important implications for the operations and systems platforms of Wealth Management firms. ii. Respond to requests for Wealth Management firms to obtain more information on trends, insights and emerging best practice in the operations and technology areas. iii. Help industry participants to be more effective in planning, evolving and executing their operations and technology activities, currently and over the next three years. We conducted the survey using a questionnaire and a series of interviews with Chief Operating Officers (COO s) in the UK. The survey was undertaken with the help of two independent globally recognised Wealth Management consultants, Bruce Weatherill and Ian Woodhouse. The report captures Sapient s analysis and insights from the key findings and conclusions of the survey. If you would like to follow up on any of the issues raised in this report, please contact us, as we are happy to share further our experience with you. Jonathan Davies Vice President Sapient Global Markets jd@sapient.com Sean Smillie Director Sapient Global Markets ssmillie@sapient.com UK Wealth Management 2010 Delivering more business value from operations and technology 3

6 2. Executive summary Our findings reveal a number of trends and insights into how Wealth Management firms are responding to the challenges they face. The survey shows that in 2010 focus is on ensuring operations and technology functions become more effective and efficient, continue to support the front office to meet the more demanding needs of clients and operations, and respond to tougher regulatory and compliance challenges. However, with 2010 operation and technology budgets being held or reduced it is clear that more is required with less. Although the issues faced by individual firms are largely similar, individual firm s responses to the challenges are not the same. Evolution of infrastructure The survey provides an insight into the current state of the operations and technology of Wealth Management firms. What is clear is that many firms are positioned quite differently; some firms are reaping the rewards of previous investment, whilst other firms are still struggling with legacy systems. We found in many cases that much of a firm s expenditure is incurred keeping the current systems operational, rather than expenditure being directed towards meeting the changing needs of clients, regulators or the firm s own organisation. Our analysis plots each participant s position against a model of the operations and technology evolution of a Wealth Management firm. This provides an insight on how different Wealth Management firms progress through the various stages, to better achieve more from less. Our analysis identifies five stages of evolution of a Wealth Management firm s platform. This platform ranges from stage one, a legacy environment, which is characterised by manual processes, poor customer reporting, poor reference data and technology applications that are silo d by asset classes. The target infrastructure environment that we see in stage five is built on an integrated technology platform, which gives a cross-asset class view from a client and regulatory reporting perspective. Wealth Management firms at this level have automated processes requiring minimal manual intervention and a centralised data repository. The technology platform also has applications that feed web based, ad hoc enquiry, to give clients an automated view of consolidated client portfolios and other information. At this stage some noncore operations are outsourced to centralised units, either within the wider firm or to strategically aligned vendors, providing processing and data feeds into the firm s infrastructure with minimal manual intervention. Scalability and budgets Scalability is a challenge for COO s. The successful Wealth Management firms of the future will be those who successfully tackle this issue. Wealth Management firms realise that in 2010, volumes will continue to increase and hence the underlying platform must be scalable. In order to achieve this efficiency Wealth Management firms have increased technology spend at the expense of operational headcount. A challenge to firms is to ensure that technology projects are managed appropriately. Any delay or overrun will have a major impact on operational risk in light of resource and budget constraints. The demand for Wealth Management technology resources will increase as Wealth Management firms implement the new infrastructure. These resource costs will also increase as there is only a limited pool of skilled resources in the European market. Cost efficiencies will occur through both improved technology and the centralisation and outsourcing of noncore processes. Future state The survey shows that there are technology improvements needed in terms of improving value added interactions with the Wealth Manager s Relationship Managers and clients. Whilst in the short term, focus is on developing better pricing tools and reporting, longer term, the investment focus is on developing improved client relationship management tools. Strategies will also include increased straight through processing (STP) and reducing the number of manual processes. The exact requirements for, and hence the impact and cost of, new regulation is partially unknown. However, all participants understand what the increased demands from governments and regulatory authorities will mean. UK Wealth Management 2010 Delivering more business value from operations and technology 4

7 Wealth Management firms must understand, adapt and develop technology solutions to meet the numerous new regulations that will be imposed as a result of the recent credit crunch and turmoil in the financial markets. Conclusion Key to success for developing a world-class Wealth Management infrastructure is to create a target technology environment that is driven by the needs of the business, specifically the client required functionality and service. This infrastructure must support the organisation through the Relationship Managers, so these managers are able to deliver excellent advice and service to their clients. Functionality must include up-to-date and reliable data and information. To achieve this functionality, Wealth Management firms must develop a centralised data repository, a dynamic cross-asset technology platform and identify opportunities for shared services. Better selection and use of vendors who can support the strategic goals of the Wealth Management firms, will also be required. Finally, in order to reduce costs Wealth Managers must consider the use of outsourcing or off-shoring for noncore processes. Whilst starting positions of firms may be different, there are clear trends emerging as to what COO s are focused on and how they can contribute to their organisations and support their Chief Executive Officer s (CEO s) to deliver on the agreed strategy. Only the Wealth Management firms who are efficient, compliant and dedicated to client service will survive to meet the ever more onerous demands of clients. UK Wealth Management 2010 Delivering more business value from operations and technology 5

8 3. Evolution of infrastructure Sapient has identified the stages required to develop a world-class infrastructure for Wealth Management firms. Firms must understand the stages and where their firm is positioned currently in these stages, in order to implement a strategy to deliver a world-class infrastructure. Analysis and interpretation of the survey results and interviews led Sapient to conclude that there are five organisational states where a firm s infrastructure either is or is transitioning to. This finding can be correlated against the Wealth Management industry as a whole and provides an important insight into future operations and technology spending and dynamics. Understanding the stages of development should help Wealth Management COO s to guide operations and technology strategy, helping management set expectations around budgetary requirements over the coming years. The analysis highlights not only the stage where an organisation is positioned, but also within them the broad steps required to deliver the business strategy. Our research identifies the following five stages to develop a world-class infrastructure for Wealth Management firms. Stage I: Legacy system endowment Legacy system endowment within firms is characterised by having multiple systems, which are typically poorly integrated and have processes that are heavily reliant on manual intervention. The budgetary spend in this area is seen as maintaining the status quo and provides little if any growth or expansion of service. Operational teams are generally exceeding capacity, with service levels only being maintained by increasing headcount when coping with current and future business expansion. Technology costs are difficult to measure as the reduced cost of the legacy system is offset by the need for stop gap solutions to immediate business requirements. With the strong likelihood of manual data re-keying, errors will be high compared to organisations with more streamlined solutions. This pressure will only increase as the business expands. The infrastructure has different silos for different asset classes, such as securities, cash, fixed income products, alternative investments, structured investments and funds. Static reference data is on legacy systems and is not located in one centralised area. The system does not easily generate a client consolidated portfolio across all asset classes. During this stage of development, a Wealth Management firm will often use a number of third party vendors, which provide bespoke data feeds that may not necessarily be strategically aligned to the firm s existing infrastructure. Hence these processes often require manual workarounds with a resultant increase in operational risk. v Scalable and adaptable iv Efficiency improvements iii Steady state ii Investment in platform i Legacy system endowment Figure 1: The five stages of infrastructure evolution UK Wealth Management 2010 Delivering more business value from operations and technology 6

9 Stage II: Investment in platform In this stage participants are making major targeted investments in their systems, by introducing new applications or considering outsourcing an element of their operation. This investment also focuses on consolidation of current systems and operational processes. For example, participants at this stage are starting to focus more on client reporting and building a central reference repository to consolidate client data. Operational capacity is still likely to be exceeded; hence further investment is needed to cope with future business expansion. A large proportion of the budget for 2010 is needed to implement these new platforms, from an application perspective as well as optimising the support for operational processes. Organisations at this stage that have either overspent or reduced the scope of investment will be left in an interim state of systems progression. There is a risk that although platform investment is made, the investment may not alleviate the increasing pressure on operational teams. This situation may result in the business not seeing sufficient return on investment. Stage III: Steady state Participants are seeing continued return on investment within their current business model. Operational capacity is manageable and capacity allows the Wealth Management firms to support a steady level of business expansion. Costs are still high, but the business is realising the return from its investment and the benefits from an efficient end-to-end process. Other by-products at this stage are increased accuracy and improved timeliness of data. These processes give the business users a greater confidence in the information being provided. Participants have also invested in better client reporting technology and have started to consolidate the silo d asset class architecture. Although the level of business expansion is supported by the infrastructure, any core strategy changes or new regulations require a high level of investment. The steady state has a high risk of dropping towards the legacy state, unless further investment to maintain the current service level is made. Stage IV: Efficiency improvement Participants are seeking to make additional efficiency improvements beyond steady state and are expecting to reduce operational costs, errors and headcount. Participants at this stage are also able to adapt to market, operational changes and concentrate budgets on moving them to the final stage of the infrastructure development. Participants in this stage must be careful not to fall back to steady state but continue to invest in order to reach the scalable and adaptable stage. Stage V: Scalable and adaptable The final stage in the process indicates an adoption of technology-enabled business operations, resulting in high levels of efficiency and effectiveness. Participants at this stage can easily adapt to industry changes either driven by business expansion or regulatory requirements. Operational costs will not only meet current requirements but will enable ongoing investment to ensure the current level of service is being maintained. System architecture produces automated consolidated client portfolios; these consolidated portfolios have online ad-hoc functionality for the Wealth Management firm s clients. The service providers that the firm has chosen are strategically aligned and produce end-to-end automation and electronicallyconfirmed data feeds, which interact directly with the client s systems. The firm has a centralised static data architecture, which is well controlled and which has automated feeds into client portfolio reporting. At this level systems and operations become a real differentiator and will help drive significant added value. This robust infrastructure also makes these firms better placed to meet expected regulatory demands for increased transparency. Sapient view Sapient identified that the strategies for each Wealth Management firm will be different depending upon their past history and evolution. Although there are common core stages of evolution towards excellence, firms need to prioritise the core components they must implement to progress up the stages of infrastructure development. Wealth Management firms perception of where they believe themselves to be currently positioned was in most cases, greater than the reality of their position. Sapient believes that only when the Wealth Management firm has understood where they are in their infrastructure evolution stage, can the firm determine its priorities and the required competencies to develop a robust implementation plan and work stream to realise its strategy. UK Wealth Management 2010 Delivering more business value from operations and technology 7

10 4. Technology cost allocation As Wealth Management firms progress through the evolutionary stages, a different emphasis on technology spending is required to maintain and develop their systems. A more focused approach to investment can produce a better balance between spending on maintenance and development, and in turn lead to greater efficiencies in terms of reducing the cost:income ratio. We analysed the annual technology spending (excluding headcount) in relation to the different stages, as shown in Figure 2. Figure 2 illustrates that many of the survey participants are in a transitional state. This observation is indicative of differences in the investment that individual Wealth Management firms are currently undertaking. Absolute technology investment does not correlate to either the size of firm or stage of their infrastructure development but rather to where spend is being deployed. It is costly and challenging to move from the legacy system endowment stage to investments in platform. However, it is only by doing this that the Wealth Management firms will move on a path to achieve the efficiencies that are to be gained from moving beyond the steady state stage. Institutions that are at the legacy system endowment stage will invest most of their technology budget on maintaining the current system rather than enhancing it. Substantial additional investment will be required if they are to improve their investment platforms. In contrast, institutions that are at the steady state and efficiency improvements stages have a larger proportion of investment becoming available for enhancing their system to utilise its full potential. Sapient view Wealth Management firms must understand where they are in the firm s infrastructure development, in order to prioritise and project manage the implementation of their technology strategy and spend. Pure monetary investment is not enough to guarantee this return; spend must be coupled with a clear and achievable strategy for operations and technology. The survey indicated that all participants want to reach a much higher stage over the next three years. However, after deeper analysis we found that most budgets are held or reduced, so better and more careful prioritisation of spend is needed if they are to achieve this. The successful Wealth Management businesses of the future will change their traditional approach on operations and technology, to help them move to a higher stage. Upper tier stage 5 Scalable and adaptable Infrastructure development Efficiency improvements Steady state Investment in platform Legacy system endowment Mid tier stage Lower tier stage 0-500k 500k-1m 1-5m 5-10m 10-15m 15m> UK sterling Figure 2: Spending on technology (excluding headcount) UK Wealth Management 2010 Delivering more business value from operations and technology 8

11 5. levels OF SCalaBIlIty Wealth Management firm s infrastructure must be reviewed and refocused to better manage capacity and achieve a world-class scalable infrastructure. Lack of scalability is clearly an issue for many of the participants. Figure 3 shows that currently 20% of Wealth Management firms believe they are operating at full or over capacity and are concerned that as growth resumes they will not be able to deal with it, without increased risk. Figure 4 shows that in three years time participants expect to be operating at % capacity. This graph is consistent with the trend that investment in technology will create more capacity, which is delivered in a more efficient way. What % of operations capacity, in terms of business volumes, is your organisation operating at currently? What % of operations capacity, in terms of business volumes, is your organisation operating at currently? 20% 30% What % of operations capacity, in terms of business volumes, do you anticipate operating at in three years time? What % of operations capacity, in terms of business volumes, is your organisation operating at currently? 10% 20% 50% 30% 20% 90% 30% 50% 50% 0-20% 21-40% 41-60% 61-80% % 100% > (over capacity) 0-20% 21-40% 41-60% 61-80% % 100% > (over capacity) Figure 3: Current percentage of operational capacity Figure 4: Operational capacity in three years time Although 80% of participants feel that they are currently operating at or below 100% capacity and can cope with expected growth, the firms also believe there are current inefficiencies in processes. These firms believe that the platform is not scalable in an efficient way and that greater headcount is needed to deal with expected peaks or growth. Firms with these characteristics are mostly operating at the lower stages of the infrastructure development. The survey also shows that the 2010 technology headcount increases but with a reduction in operations headcount. This observation indicates that Wealth Management firms will address the capacity issues by investment in technology. Many participants were concerned that the technology projects will not be implemented quickly or effectively enough and hence their firm could be underresourced in operations during the implementation process. Sapient view The expectation of a resuming increase in business growth, the additional pressure on operations teams already operating at near to or over capacity and the use of overextended supporting systems, will result in greater operational risk for Wealth Management firms. CEO s and COO s will need to ensure consideration of these factors when defining the company s operations and technology strategy for the future. All Wealth Management firms will require more focused investment in their operations and technology to maximise their efficiency and attain greater control of their processes. This improved control will enable them to operate closer to maximum capacity without fear of compromising their level of service or risk management. UK Wealth ManageMent 2010 Delivering more business value from operations and technology 9

12 6. BUdgetS Chief Operating Officers are being challenged as never before to deliver more from less with participants required to hold, or decrease, their budget for This challenge comes at a time when pressure on the business has never been greater. It is felt that existing budgets for operations and technology are currently being dictated by a more general reaction to market conditions, rather than a conscious decision driven by the business needs and return on investment. As all participants expect to have to improve their current state, the budgets for subsequent years will need to be revisited to reflect the anticipated investment needed. Figure 5 shows that only 20% of participants have increased technology budget in Have you Have seen you an seen increase, an increase, hold, or hold, decrease or decrease in your in budget your budget for for 2009/2010? 2009/2010? 40% 40% Figure 5: Budget status 20% 20% 40% 40% Increase Decrease Hold As demonstrated in Figure 6, the top priority for allocating the current operational budget is to meet regulatory and compliance commitments. This trend is followed closely by coping with business expansion. In the future more emphasis will be on business expansion but respondents expect that there will still need to be considerable and continued investment to meet the anticipated, more demanding, regulatory and compliance requirements. Figure 7 (on page ten) shows where the focus of technology spending is being allocated in 2010 and going forward in the next three years. The key areas of focus in 2010 are improving client reporting, valuations and increasing STP. Core to any Wealth Management firm s strategy going forward, is ensuring accurate, robust and transparent client reporting. Static data is typically often on a number of different databases reflecting historical systems architectures, legacy systems from acquisitions and poor interfaces to the front office. Client reports are frequently collated as asset classes are silo d and require manual collation to produce a consolidated view. These operational issues can result in operational errors. In order to address these issues Wealth Management firms in the scalable and adaptable stage have developed an architecture which includes a central database for reference data. This database feeds through all the asset classes and ultimately drives the client portfolio without any addon or system enhancements. In order to address the silo d approach to asset classes, architecture is designed to link across all asset classes. Hence in effect what the Relationship Managers and clients can see through the web interface is driven by the same technology that the Wealth Manager uses internally. As a result, client reporting is accurate as there is limited manual process. Top priorities for allocating your operations budget and how you expect these to change in three years time Now In three years time Figure 6: Budget Allocation UK Wealth ManageMent 2010 Delivering more business value from operations and technology 10

13 Participants key technology strategies Now In three years time Figure 7: Key technology strategies now Over the next three years technology investment will focus on improving Management Information Systems (MIS), for example MIS detailing how clients behave, so appropriate products and services can be better developed and sold. There will also be increased focus on technology developments surrounding strategic vendors, where technology is developed and aligned to the Wealth Management firms. An example here would be ensuring that custodian vendors deliver client data, which can feed automatically into the client s infrastructure that is in the appropriate format to input into the client reporting tool, with limited manual intervention. Of the participants, 60% indicated that they had undertaken a major systems upgrade programme in the last twelve months, which means that they had continued to invest despite difficult conditions. More worryingly, 60% of participants also felt that their investment in systems had resulted in only a slight or no improvement, which means that their investments in systems had yet to fully deliver. Participants were seeking to better enhance their technology strategies to improve client reporting and valuations, increase STP, update their architecture to better align to future business needs and improve the management of information. Those higher up the evolutionary process were able to deal with the current business issues and also adapt to implement new operational processes. Sapient view Certain participants will find budgetary constraints a big challenge, as the bulk of their current budgets is allocated to support their currently inefficient operational processes and maintaining service levels. This budget allocation will reduce their capacity to invest in platforms, which would subsequently improve the current business processes. Those firms in the higher stages of the infrastructure evolution will probably undertake detailed reviews of Please indicate when your organisation last undertook a major Please indicate when your organisation last undertook a major systems upgrade programme systems upgrade program 30% 10% 30% 60% Figure 8: Major system upgrade conducted 60% Within last 12 months 1-2 years ago 2-5 years ago 5-10 years ago > 10 years ago their operations, with a view to attaining the ultimate level where they are scalable and adaptable. Though costs are still an important operational factor, strategic investments will be made around applications and technology to ensure service levels are met. Defining these strategic investments will require organisations to seek guidance on best practices, adopt a more formal implementation approach and to prioritise their operational spending. The focus on client reporting for technology spending in the next twelve months is critical to ensure the Wealth Management firms maintain and grow their customer base. It is important that the overall system architecture is considered and a strategic view of investment made rather than perform tactical fixes. This is a major challenge for the Wealth Management firms, as investment in a strategic solution requires more commitment and technology spending than a tactical solution. For example, simply developing an application for consolidated client reporting does not fix the underlying problem of multiple reference databases and hence there is potential for inaccurate reporting of reference data. UK Wealth ManageMent 2010 Delivering more business value from operations and technology 11

14 7. Strategies Participants in the short term will be focused on responding to business model changes and creating more centres of process efficiencies. In the future they will be revisiting outsourcing. Participants short term focus is on responding to business model changes and creating centres of process excellence as shown in Figure 9. Firms expect changes to the business model to be an area of continuing focus over the next three years. In parallel, operations and technology will need to be flexible in order to continually adapt to and accommodate changes in the business model and core processes. To change their models Wealth Management firms are investing in strategies such as outsourcing non-core processes. Some non-core operational processes can easily be outsourced or off-shored to lower cost centres. Responding to business model changes Wealth Management firms must continue to focus on their client needs and ensuring the Relationship Manager is able to deliver what the client needs. In order to do this, firms must ensure that they perform regular customer satisfaction surveys, develop and improve research and build technology which meets their clients needs. One area of caution is to ensure that in developing new tools, the Relationship Manager s interaction with his clients is not compromised. Also Wealth Management firms will need to address the regulatory changes. Regulatory projects must be firmly on the Board s agenda for Centres of excellence Firms are developing operational centres of process excellence. Wealth Management firms are standardising and then sharing activities across different business units or geographies. A good example of this can be seen in securities processing and settlement functions. This strategy achieves greater efficiencies and better risk control. Cost reduction Wealth Management firms are looking at a number of ways of reducing costs. Apart from the usual financial services cost reduction areas such as premises, staff costs and marketing budgets, COO s must look for more strategic cost reductions. Some Wealth Management firms have already implemented core processing centres in low cost jurisdictions. This is an off-shoring strategy and not an outsourcing strategy. However in 2010, outsourcing options are to be looked at again. Respondents were unanimous in the view that outsourcing was less developed in Wealth Management firms than in other sectors of financial service. Currently 40% of participants are outsourcing their securities processing procedures and 30% are currently Your key organisational and process strategies now, and in three years time Now In three years time Figure 9: Current and future organisational and process strategies UK Wealth Management 2010 Delivering more business value from operations and technology 12

15 outsourcing their client accounting, reporting, payments and settlements. In the future, payments, settlements, custody and data management are areas where respondents expect to outsource more. The other area of cost reduction will be more tactical and focused on putting pressure on the Wealth Management firm s suppliers. Hence in 2010 more time will be spent looking at streamlining data providers and things like custodian relationships. Strategies include consolidating data vendors, extending length of contracts to get a larger discount and consolidating outsourced services into fewer vendors to get more purchasing power at a lower cost. There is even discussion around Wealth Management firms working together to put pressure on the vendors to produce commoditised solutions. These solutions can be rolled out to all Wealth Management firms at a lower cost than if individual Wealth Management firms develop solutions themselves or negotiate with the vendor independently. Sapient view With the Wealth Management market becoming more challenging and competitive, and the erosion of margin, Wealth Management firms will need to take a more proactive approach to their operations and technology investment strategies, to ensure greater business value. Operations and technology will also need to re-skill or partner in some key areas to be able to better and more easily adapt to these changes. Going forward, a strong operations and technology strategy will be essential, which will need to be based on a greater alignment with the business strategy. UK Wealth Management 2010 Delivering more business value from operations and technology 13

16 8. Future State The successful Wealth Management firms of the future will be those where operations and technology strategies can overcome their legacy endowments and become more aligned with the needs of the business strategy. This focus will cause differentiation and cost savings, hence driving greater value for the firm. Process alignment, operational optimisation, increased client value and efficient operating processes will be just a few of the buzz words providing direction for the future strategies. COO s can be expected to face direct questions around the current state such as: can the current operations and technology platform support three- and four-fold growth and cope with risks of growth? Are our systems capable of adapting to regulatory requirements? Staffing and skills mix expected to change To cope with these changes, participants expect to have to change their approach to people in terms of skills mix. Figure 10 shows how participants expect that staffing within the back office of Wealth Management firms will change over the next three years. Overall they expect to increase technology staff numbers while reducing operational staff numbers. This change in mix is in line with the strategy of improving operational and technology efficiency. Individual participants were concerned that the resource pool in the market for technology is limited and hence staff cost per resource will increase as demand exceeds capacity, putting further pressure on the budgets. There is also a concern that the Wealth Management firms need specialist technology resources who specifically understand their products. The scarcity of this competency will put further pressure on the resource pool. The survey also shows that 30% of participants plan to increase their off-shore technology and operations component of their staff. Here, survey participants expressed concerns that the overall off-shoring strategies were, as yet, not fully developed. What are your future plans for people strategies within IT and operations? Operations (%) Technology (%) Figure 10: People strategy Front Office Now In three years time Figure 11: Front office focus UK Wealth Management 2010 Delivering more business value from operations and technology 14

17 More investment in the future will be focused on supporting increased client service In the front office, improvements are currently focused on pricing tools, as shown in Figure 11. This short term need is driven by tougher market conditions. The long term focus is on improving client relationship management systems and technology enablement in the client relationship advisor and client internet areas. Future challenges - client facing issues There is much concern by clients around the quality of service provided by Wealth Management firms. As such we asked where Wealth Management firms saw their greatest challenges. The biggest concern was around over-reliance on manual processes. The investment in technology should address this issue. Another issue is the over-production of manual paper statements. Whilst this would be relatively easy for Wealth Management firms to address from a technology perspective, the issue is that regulators require statements to be generated for most transactions made on behalf of clients. Although Wealth Management firms recognise this as an issue, due to regulation, firms feel it is one which they cannot easily address. Lack of e-business applications is also an issue, which will only be resolved fully when target architecture is developed for the back office infrastructure and aligned to the strategy of the Wealth Management firm, for example alignment of different asset classes on one system. Too often asset classes are silo d and require tactical fixes to feed a client consolidated portfolio. This is expensive and risks operational errors. However, once the infrastructure is built across asset classes the client interface web is far easier to implement. Poor MIS on clients is also a major concern and firms need to develop functionality which allows them to better profile clients and their requirements, if the Wealth Manager is to develop and subsequently sell appropriate products to their clients. Future challenges - non client facing issues Achieving current and future compliance requirements and adhering to a fast-changing regulatory landscape, was viewed as a key challenge. With regard to technology issues, the greatest challenges were seen as improving applications maintenance efficiencies and increasing applications development efforts. Improving technology support, management and organisation in key areas such as procurement and project management were also viewed as key future challenges. Further challenges were identified in terms of managing the technology infrastructure and upgrading counterparty risk management. Challenges around achieving current and future compliance requirements The Financial Services Authority s (FSA s) Retail Distribution Review (RDR) proposals represent one of the most radical changes to the regulatory landscape for the provision of financial advice for many years. The move towards truly independent advice and the end to commission and trail fees linked to a tightening of the hurdle for Treating Customers Fairly (TCF), will require a number of changes to processes and systems. In addition, the regulators are now far more unforgiving of breaches and non-compliance. Those Wealth Management firms that fail to comply, or are slow to rectify issues, are subject to high fines or in some cases, having their licences withdrawn. Client facing Now In three years time Figure 12: Client facing UK Wealth Management 2010 Delivering more business value from operations and technology 15

18 Non-client facing Now In three years time Figure 13: Non-client facing In this environment, when new regulations require changes in systems, processes or technology, the expenditure is not discretionary. The fact that regulatory expenditure is not in the budget is not a defence. This expenditure will still need to be authorised. In respect of UK regulation the key challenge is RDR and capital requirements. RDR will require new processes and training to be implemented in respect of client advice. The move from commission-based fees to advisory fees will require not only education but new functionality within the system. This change will require technology spending. Many participants expressed concern that they were unclear on how much budget they should allocate to this change. This challenge is a result of the lack of clarity on how much work is required to change the business model and the supporting operations and systems functionality. Sapient view The Wealth Management firms are making strategic moves away from manual processes and replacing these with improved technology. To achieve this they recognise the need to change their staffing and skills mix and see a clear trend of reduction in operations headcount but an increase in technology headcount. This trend supports the statement that the Wealth Management firms, who can achieve better focus and prioritisation on the key areas of operations and technology, will create greater business value. However, Wealth Management firms must take great care in implementing these technologies and people changes and in upgrading skills in key areas such as project management, where often these types of projects suffer from both overruns and overspending. This issue will be especially acute in the near future as Wealth Management technology resources are likely to be scarce due to over-demand and this further increases the cost of the resources and hence the projects. One solution to the industry would be for vendors to develop enhanced software packages, which can perform back office functionality for Wealth Management firms. However, in order to make this happen, some Wealth Management firms will need to change their perspective on the value of having a proprietary back office system. This is a mindset change and they can learn from the example of other financial services sectors. For example in derivatives, back office operations are now considered a commodity and therefore not a major business differentiator. Hence in the derivatives trading arena, technology is now sourced by industry initiatives and standards, leaving banks to focus spend on the technology in the front end that provides the differentiator. In respect of client facing and non-client facing issues, Wealth Management firms must prioritise where they will get the most impact from their investments. Some areas, such as client paper statements, are difficult to address because of regulation, however areas such as MIS are under the control of the Wealth Manager and will make a tangible difference to profitability if implemented properly. How do you believe regulatory requirements will impact your operations and systems going forward? Minor impact (%) Below average (%) Average impact (%) Above average impact (%) Major impact (%) Figure 14: Regulatory operation impact UK Wealth Management 2010 Delivering more business value from operations and technology 16

19 9. Key issues and actions Deliver greater business value from operations and technology for 2010 and beyond. Our analysis of the survey identifies a number of pressures and challenges for all Wealth Management firms and the need for them to develop a more responsive operations and technology infrastructure. Recently, many Wealth Management firms have lost their status as trusted advisor and part of rebuilding that client trust is to provide reliable, relevant, timely and client centric information. Scalable and adaptable infrastructure must support these needs and firms must respond. Sapient recommends that to deliver greater business value in operations and technology, COO s should review their key operation and technology projects. Our analysis identifies three areas that require focus: these are strategic analysis, cost reduction and improved service offering. Strategic analysis Objective: Understand where you are in the five-stage infrastructure evolution process. Action: Perform a current state review to assess where you are in the current state. Issue / Rationale: Participants in the survey overestimated where they were on the technology evolutionary process. Unless Wealth Management firms understand where they are, a world-class operations and technology strategy will be difficult to implement. Objective: Ensure the COO is included in regulatory requirements working groups. Action: Set up a regulatory working group which has Board support. Issue / Rationale: Regulatory reporting will become more onerous and failure to comply will have a major effect on a Wealth Management firm s ability to deliver against its strategy. The working group must contain the COO, business heads, operational heads and technology heads. This group must be responsible in ensuring there is strong project management and that the infrastructure required is built to meet the regulatory reporting requirements. Cost reduction Objective: Achieve a decrease in operational running costs. Action: Identify non-core processes, which can be standardised and centralised and moved to low cost jurisdictions for outsourcing or off-shoring. Issue / Rationale: Wealth Management firm s operational costs can be excessively high, due to location of resources and functions. Identification of processes and functions that can be moved off-shore or outsourced will reduce running costs. Objective: Achieve a decrease in operational running costs. Action: Analysis of data feeds and vendor relationships to develop a plan for cost savings. Issue / Rationale: Many Wealth Management firms have numerous vendors and data providers supplying their business. Consolidating vendors by developing strategic partnerships could result in cost savings. Similarly, considering the number of data providers and reviewing contract terms could also reduce costs. Improving service delivery Objective: Reduction of manual errors and improving client reporting. Action: Understand where operational errors are occurring and develop strategic technology solutions to address those errors. Issue / Rationale: The infrastructure supporting the front office has not kept pace with the functionality required to support client delivery. This results in operational errors. Since the credit crunch, clients have seen portfolios decrease in value, and hence are challenging their Wealth Manager to improve their service. Wealth Management firms must improve their UK Wealth Management 2010 Delivering more business value from operations and technology 17

20 service levels by implementing operational best-practice and investing in technology, which can better adapt to the business flows. Investment in better integrated and aligned technology will result in reduced errors and the ability for the Wealth Management firm to adapt to change. The result will be new clients and less attrition of clients to competitors. Objective: Reduction of manual errors and improving client reporting. Action: Review technology architecture to ensure asset classes share a common platform and are not silo-based. Issue / Rationale: Technology platforms are silo d by asset classes and do not share a common platform. One key result of this is that customer reporting is collated manually across multiple systems. By providing one common platform, consolidated reporting of a client s portfolio will be automated, resulting in improved customer reporting and less operational risk. This improved service will help to regain trusted advisor status, and build client confidence through the use of better correspondence and information. Objective: Achieve a single source reference database. Action: Implement one reference database for client information. Issue / Rationale: There is often inconsistent client information, as data is spread across multiple systems. This structure often results in errors in customer reporting. A centralised view of this information will provide a consistent organisational view of the data, make this information accessible and reduce operational errors to clients. Ultimately this architecture will ensure that the presentation for more interactive client delivery can be implemented with a provision of a single data point. Objective: Align the operations and technology environment with business strategy. Action: Develop an operations and technology strategic roadmap. Issue / Rationale: Too often Wealth Management firms do not offer the functionality at the front end which the customer requires. It is important that the Relationship Managers understand their client needs and feed this requirement into the operations and technology strategy if the Relationship Manager is to truly meet the needs of his/her clients. A clear plan of the target operations and technology environment will ensure a roadmap is developed, which is aligned with the business strategy. This process will ensure Wealth Management firms have the right deliverable for best service and execution. UK Wealth Management 2010 Delivering more business value from operations and technology 18

21 10. About Sapient s Wealth Management TEAM Sapient s Wealth Management team provides advisory, operational support and technology solutions to our clients. Our model is to have industry practitioners supported by our core operations and technology teams, to ensure we can provide innovative solutions to our clients issues. We focus on developing industry benchmarks and are committed to working with clients in their environment, with further industry-trained experts off-shore for global support. Sapient holds a 15-year track record of servicing leading clients at all the major investment banks, and with five of the top ten asset, Wealth Management, hedge funds and market intermediaries. Bruce Weatherill Bruce is a Wealth Management consultant with Financial Services Industry experience gained from over 33 years with PricewaterhouseCoopers, where he was a Financial Services Partner for 20 years. At PwC he was Global Leader of the PwC Private Banking / Wealth Management Practice. Currently Bruce provides consulting services to Boards and Senior Executives of Wealth Management firms. resources to buy side firms and investment banks, to help perform reconciliations and resource augmentation in operations. Sean Smillie Sean is a Director of Business Consulting within Sapient s Global Markets team. He has over 20 years experience delivering business-focused technical solutions to the financial services sector, providing front office solutions for investment management, Wealth Management and hedge fund firms. Christopher Percy Christopher is a Business Analyst working within the Wealth Management delivery team providing Sapient s capabilities in operational and technology support to implement tactical and strategic solutions in Private Banks and Wealth Management firms. He also has experience of working with several leading investment banks on operating system change and trade data integration. Christopher was instrumental in compiling and running the first Sapient Wealth Management operations and technology systems survey. Ian Woodhouse Ian has over 20 years deep experience of consulting and advising the Wealth Management industry on analysis, design and implementation of strategic, operational and systems performance improvement initiatives. Ian s experience includes working for consultancies, PwC, IBM and Ernst & Young where he also led their Wealth Management industry insight and benchmarking surveys. Elizabeth Harper Elizabeth is a Business Analyst working within the Wealth Management delivery team and has experience of working within the buy-side and sell-side of a number of firms specifically regarding operational and back office processes. Elizabeth has collaborated in the analysis and preparation of the first Sapient Wealth Management operations and technology systems survey. Jonathan Davies Jonathan is Vice President within Sapient s Global Markets team and has been involved with Wealth Management for over 15 years. Five years ago, he set up DCG limited which was acquired by Sapient Global Markets in With a workforce of over 300 people, DCG supplied trained Alex Sion Alex is a Vice President based in New York City, where he leads Digital Strategy for the Financial Services sector. He has over ten years experience in digital strategy for financial services firms as a management consultant and as an executive for a leading Wealth Management firm. UK Wealth Management 2010 Delivering more business value from operations and technology 19