Most wealth management firms are still deploying capital in a “fragmented fashion” when it comes to addressing technology issues, Al Chiaradonna of SEI Wealth Platform tells Family Wealth Report.

Rising regulatory requirements and
associated costs, among other developments, have made wealth managers more aware of how technology can help alleviate the pain. A recent SEI study points out, for example, that advisors who must manually handle market and client data causes a big drag on firms' revenues.

Rather than relying on various systems for
individual processes, The Legacy of Legacy Systems, the SEI report, urges firms to use a
single platform for product distribution and client data management, and it warns
against the use of technology “quick fixes” in particular.

However, most firms are still deploying
capital in a “fragmented fashion” when it comes to addressing technology
issues, Al Chiaradonna, senior vice president, SEI Wealth Platform, told this
publication in an interview.

Indeed, the RBC Wealth Management/Capgemini World Wealth Report 2013, published earlier this year, acknowledges that “given the
complexity and regional variation of regulations, many firms take a tactical
compliance approach by addressing requirements in a one-off manner," he said.

Such insights come at a time when there
continues to be debate about what is the most efficient approach wealth
management firms should take in handling issues like technology upgrades and
replacements, particularly when sensitive client data is at stake. For example, a client might have just
acquired new technology or be in year one of a several-year contract. They may
also have concerns about implementation and integration costs, disruption to
clients, and the pace and degree of change.

Chiaradonna said the latter
can be “hard to put your arms around from a financial perspective and is
challenging in some instances to put your arms around it from an emotional
perspective.” Factors to consider on this point include 1) managing change 2)
minimizing end-client disruption, and 3) understanding clients from a
segmentation perspective beyond size of wallet. He noted that a pressing
business issue such as bleeding cash flow will usually dictate the speed at
which clients want the change to occur.

Re-examining
legacy

Through its Wealth Platform offering, SEI
provides wealth management firms with technology infrastructure, administrative
support, and wealth processing services and wealth management programs. The
platform permits trading and transactions on 104 stock exchanges in 45
countries and 33 currencies.

The US firm works with clients by taking an
inventory of all their “disparate” technology systems to ascertain what it
costs to run them and what the contract terms and dates are. An agenda is then
drawn up, outlining which aspects would, or should, go under a unified
platform. The cost of customization is correlated with two main things,
Chiaradonna explained: development coding or an amount related to the cost of integrating
systems.

But concerns about security have escalated
in recent time. According to the 2013 FOX Family Office Benchmarking:
Technology in the Family Office study, for example, security worries - which
apply both to data itself and how it is communicated - are now mentioned just
as often as integration.

“The angle we’ve taken…is that we believe
all data is not created equal,” Chiaradonna said. “Certain people need certain access
to certain information and should have that based on roles and rules inside the
organization. The unified nature of a platform and the centralization of that
data I think does enhance the opportunity for cleaner, more accurate data, and
therefore perhaps less compliance and regulatory bumps.”

As outlined in this year’s World Wealth
Report, investments in CRM, reporting, process automation and risk management
are all necessary for achieving compliance. “Process design and execution (e.g. on-boarding) is an
important part of the client experience as well as wealth manager productivity
and retention,” it says.

“What we’ve done from a compliance and
regulatory perspective is put the opportunity in the hands of the financial
services entity to decide who has access to what information,” Chiaradonna said. “I believe a
number of regulatory and compliance issues manifest themselves as people try to
navigate between disparate pieces of technology, meaning people can’t keep
control over where the information is, let alone who has access to it.”

The
current picture

Chiaradonna estimates that, in the US,
around 80-90 per cent of wealth management firms today are operating off
legacy-based technology systems. But based on his observations over the past
12-18 months, “we believe things are all changing,” he said.

“Budgets are freeing up. If that [the
percentage of firms operating off legacy-based systems] were confirmed, I’d say
about 30-40 per cent of the market right now at least, from our perspective, is
in active dialogue [regarding the concept of a technology infrastructure
overhaul].”

Meanwhile, other industry studies suggest
that wealth managers in the US are more tech-savvy and thus target a leaner
business model than their global peers. Firms in North America are “making significant
investments in core processes and technology as reflected in substantially
higher operations and technology budget forecasts”, according to a summer 2013
PwC study entitled Navigating to tomorrow: serving clients and creating value.

“The US market tends to be driven by
investors that are more technologically savvy and demanding,” added Ryan Hicke,
also a managing director for the SEI Wealth Platform.

Implementation

When asked exactly what types of technology
systems are typically included in the term “legacy infrastructure,” Chiaradonna
said he has seen as low as about 35-40 and as high as about 65-70. They include
CRM packages; financial planning tools; portfolio and trust accounting systems; portfolio management; Microsoft
application practices; and all underlying hardware.

So in terms of how long it might take a firm
to migrate its current technology infrastructure onto a single platform solution,
Chiaradonna said that - for those who treat the transition as a “technological
augmentation” or “quick fix” approach - you’re probably looking at three- to
six-month windows.

“But if you are really embracing the
concept of the ‘legacy of legacy systems,’ and you want a unified enterprise
platform - a single structure - then the journey takes longer,” he said.

“You can be on our new solution in between
six and nine months if you want to be at the ‘open for business’ model, meaning
all new business can come on to the platform and you can transfer your legacy
business at the pace you want. If you want the full transition to move the
legacy business all at the same time and you want to move the data and
synchronize the systems and rationalize the technology, that can range from on average
a 12-13 or 13-18 month time frame. The difference between the two, in our
experience, is the level of customization/integration you might want to
have," Chiaradonna said.

“Your choice is around client
segmentation and how you box your offering.”

Client
demands

According to SEI’s latest paper, a growing
number of wealth management clients would like to be in charge of their
finances and want to interact with professionals to help them with their more
complex financial requirements.

“Yes, they [clients] want the next best
technology, but they want it to augment the human capital…they don’t want it to
be replaced. I think there is this desire to say ‘I want a more robust
relationship that integrates technology and my advisor,’” Chiaradonna said.

And the first issue that relates to the
notion of “co-piloting” is the desire for “always on, always accessible
information,” he added.

“Always on always accessible used to be as
simple as ‘can you report it?’ Where we are moving right now is not just the
report, or access of it, but ‘I might want to transact’ - not just in a brokerage
fashion, but interacting with people. Clients want experts on hand and they
want to be part of the process by which decisions are made.”