The mass affluent* market remains a growth opportunity for the banking sector as the asset base of typical investors expands. A new report by independent market analyst Datamonitor, a leading provider of online data, analytic and forecasting platforms for key vertical sectors, Building a Technology Platform for the Ultimate Offering - Retail Banking Technology, predicts spending by financial services firms on front-to-back wealth management IT in North America, Europe and Asia-Pacific, will reach USD$28.5 billion by 2012, as they increase investment in the technology to cope with market regulations and stay competitive. For technology vendors, opportunities are not restricted to the private banking industry alone but also extend to retail banks, insurance providers, independent financial advisors, retail asset managers and retail brokerage houses.
The emergence of a wealthy and especially mass affluent segment is fuelling growth in new services and distribution options, which will require a more sophisticated approach to technology. "Wealth managers, private bankers and retail banks are no longer talking of stand-alone strategies for wealthy individuals", says Jaroslaw Knapik, financial services technology analyst with Datamonitor and author of the study. "The trend is towards 'integrated financial solutions', revolving around cross-selling banking, savings and investment products wrapped with advice."
Effective front and middle office tools, such as portfolio management, financial planning and analytical customer relationship management systems (CRM), lie at the heart of wealth management operations. Clients, particularly the more active 'new money' segment, are demanding a more hands-on approach from their relationship managers. This creates a need for advisors and front office staff to have access to more agile, automated analytical tools and presence technologies that enable client interactions to be more effective from a cost and time perspective.
As wealth managers seek greater competitive differentiation, they will look to develop an "ideal" service model. "The Ultimate Offering,** an architecture comprised of seamlessly interconnected, service oriented (SOA) architecture-enabled*** components combined with underlying business intelligence (BI) and analytical CRM components, is emerging as the IT model in wealth management."
A key priority within distribution channels will be continuous delivery of high-quality face-to-face advice while providing customers with Internet-based transactional capabilities in tandem. Retail banks looking to target this group are extending their offering beyond traditional retail banking services: more product building, stronger and multi-channel customer and advisor service options and deeper understanding of customer data.
The presentation of data has always been amongst the top priorities of wealth managers, as data reporting often determines whether a client will stay with the company. However, increasing pressure to reduce cost is causing focus to shift to back-office improvements, such as infrastructure and governance. As such, the combination of increasing competition, growing technological sophistication and an expanding mass affluent market, is driving wealth managers to enhance their data management practices.
Financial institutions are responding to the growing need for more automated and real-time back-office systems which are compliant with growing regulatory pressures. As a result, wealth mangers are turning to packaged core systems as a means of reaching these goals.
"Understanding of the Ultimate Offering will be crucial for internal IT departments as well as for technology vendors and integrators in order to properly align the existing technology stack with business needs and to design and further upgrade or develop componentized wealth management software platforms and IT infrastructure."
*Mass Affluent - Mass affluent are defined as individuals holding USD$60,000 - USD$500,000 in onshore liquid assets including cash and deposits, equities, bonds and unit trusts.
**Ultimate offering - An idealized wealth management offering and should be viewed as prototype based of worldwide offerings, however some aspects may vary according to the unique issues in individual markets.
***SOA (Service Oriented Architecture) - An architectural concept that places process components delivered as consumable services at its heart. In its modern incarnation this architecture is chiefly based on Web services, providing a Services Platform layer that exposes business and operational services, and is typically a part of Enterprise Architecture.