BOSTON — The wealth management sector is confronted with a challenge that many industries would love to contend with — prospects that their business will nearly double by the end of the decade.
As baby boomers reach retirement age, the amount of money that well-to-do Americans have to invest is expected to jump to $30 trillion by 2010, up from $17 trillion at the end of 2005. The whopping increase would come from pension plan rollovers and the sale of businesses or other illiquid assets, according to Boston-based Aite Group’s latest research paper, “Evaluating Wealth Management Advisor Platforms: Integrating the Front Office.”
“Advisers who are moving in the high-end, high-net-worth segment have to manage an increasingly large number of clients,” said Alois Pirker, the Aite senior analyst who authored the report.
In an interview, Mr. Pirker pointed out that “ultra-high-net-worth clients,” those with more than $10 million in assets to invest, “will demand a significant amount of time, advice and product sophistication, very much like an institutional client.”
To serve a demanding clientele in the fast-growing wealth management industry, managers must have the best tools available or risk losing business in an industry dominated by the economy of scale. According to the report, front-office platforms must provide: customer relationship management; financial planning; investment planning; monitoring; and ad hoc reporting, which provides a daily snapshot of the client’s holdings.
Mr. Pirker cautioned that wealth management firms that do not automate crucial front-office operations will soon face a challenge too big to overcome and may fall prey to technology-savvy rivals.
“In a consolidating industry, firms that lag behind, in terms of productivity, will become prime acquisition targets for the top producers,” the research paper said.
In the latest example of consolidation, the planned $3.3 billion acquisition of San Francisco-based Charles Schwab Corp.’s U.S. Trust unit by Bank of America Corp., Charlotte, N.C., is expected to close in late March. It will create the largest U.S. private wealth management group, with $261 billion in assets under management, $94 billion of which is from U.S. Trust.
Retaining personnel
Possibly the most important challenge for firms that compete in the wealth management space is the ability to attract and retain skilled personnel, which may depend, in part, on the tools they are given to perform their role.
“Providing advisers with an integrated front-office technology platform will not only increase their productivity but will also support wealth management firms in attracting and retaining top adviser talent,” Mr. Pirker also said.
Another benefit that managers require from their front-office platforms is the ability to cope with the tighter regulatory control of the advisory process.
Aite’s research paper reviewed six leading front-office wealth management platforms that are used by a total of 300 customers, 75% of which are banks or brokerage firms. These firms that provide front-office platforms are: AdviceAmerica Inc., Fremont, Calif.; Finantix, Venice, Italy; NorthStar Systems International Inc., San Francisco; SunGard Data Systems Inc., whose wealth management unit is based in Salt Lake City; Thomson Financial, a unit of Toronto-based Thomson Corp.; and Xeye, Toronto.
The platforms fall into two categories: complete, which are easy to integrate into the overall operations; and integration, which allow sophisticated users to add proprietary or third-party applications.
The technology challenges of integration platforms that serve the super-wealthy include flexible workflows, team-based task management, and advanced alerts. Because client and product data tend to be complex, this puts an added emphasis on the seamless integration of all the parameters considered.
To best serve the $10 million and over category, Aite selected SunGard WealthStation as the best in the complete platform section, and Xeye’s WealthManager in the integration platform category.
The consulting firm’s report said SunGard combines two “best-of-breed” solutions, PlanningStation and AllocationMaster, to build a top-of-the line wealth management solution, while Xeye’s WealthManager has the greatest deal of flexibility, including messaging and alerting capabilities.
More sophistication
“Firms that are oriented toward the top end of the market and serve high and ultra-high net-worth clients have a significantly smaller number of clients per adviser than in the mass-affluent segment. However, these managers require more sophisticated and flexible technology support,” Mr. Pirker said.
Thomson Financial is planning to extend its system to reach the ultra-high net-worth clientele and private banking sector later this year through the extension of its Thomson ONE investment management tools, he added.
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