Motivations behind Outsourcing in Wealth Management

This year Celent surveyed technology providers that service wealth management firms. The goal of the survey was to learn the motivations and strategies of wealth management firms that outsource components of their business to third party vendors.  The last time we did this survey was five years ago.

From the survey, we learned that one of the main drivers of outsourcing today is so wealth managers can experiment with the latest technology before committing vast resources to a technology that may only be a fad.  Similarly, wealth management firms are eager to outsource because it allows them to scale up or down their operation, or enter new regions, quickly and efficiently.  Wealth managers prefer to work with a technology provider to test ideas, tools and regions, before building a permanent team and spending on fixed costs.

Several motivations to outsource have become more important today than they were five years ago. These motivations include: to improve efficiency, to enrich the customer experience, and to respond to regulation.  Over the last five years, across the world we have seen a push for more stringent regulation.  Therefore, it is not surprising that regulation is top of mind for most wealth managers.

As products and services are increasingly commoditized, it is important for wealth managers to distinguish themselves via the customer experience. It is likely that over the next 12 to 18 months, wealth managers will spend relatively more time on outsourcing front office operations. For example, firms may look to vendors for improvements in: the onboarding experience, components of the advice and planning process, and help desk services.

For more information on the global outsourcing landscape in wealth management, please see my report, Outsourcing in Wealth Management: The Drivers and Strategies.

Technology Vendors Overflow?

Speaking with some clients this week in New York about how we think there are some very interesting technology offerings at the moment, trying to respond to the needs of the changing Fixed Income market infrastructure in Europe, one of them asked us: “But are there not too many vendors?”. Me not being the usual Celent analyst, who, through past research has gotten used to speaking to dozens of different vendors that offer slightly different versions of similar technological solutions, my initial response was: “Maybe actually, and maybe, as in the sell-side and in the trading platforms space, there will be space only for either the bigger ones that offer broad-base products (OMS, TCA, CLOB, etc) or the small ones that have created a niche for themselves in a specific product or customized version of a broad-base one to the needs of specific clients (pairing engines, matching sessions or auctions for credit). But then, as I was formulating my response, emerged another answer that I found very insightful: “Actually no, there are not too many vendors, and even the more generalist products that the big vendors sell have their clientele. Why? Because the secular trend of these markets is electronification”. And because even if now fixed income markets are less liquid than they have been, more volatile and risky because of instability, economic crisis and regulation, and therefore that the percentage of electronic trading in fixed income has only been stable or decreasing in cash products in Europe as we mentioned in our October sizing report, Fixed Income in Europe: Ready for the Tornado?”, well even though all of the above, this is what the markets will do: always become more technologically-intensive, less manual, more automatic. Conclusion: maybe not all of the solutions of all the technology vendors will have record sales, and maybe only a few of them will really be disruptive to the market as we will mention in an upcoming report looking at exactly which technological solutions will change the fixed income market in Europe, but there is still room for all these software vendors.

CRM for Wealth Management

We are currently working on a research report focusing on the CRM vendors for wealth management. While we had covered CRM throughout our research topics, there had not been a report focusing on the actual providers of this technology. It has been quite an interesting journey to find out the developments in this market. While CRM is an old term, still focusing on sales, customer service, and marketing automation, it has definitely been redesigned to serve the wealth management industry. It is not only basic customer information, but also financial data, client reporting, social media, and more. It is becoming a dashboard for advisors to keep track of all customer interactions, documents, and access to a firm’s multiple third party systems. So it seems that CRM systems will be the first point where an advisor will go to when they log in the morning. But how can firms know which system is better for them? There are plenty of CRM vendors out there to choose from. There are horizontal vendors, there are financial services focused vendors, there are also those that provide client portals for client access… so lot’s of choices out there. Stay tuned for our research where we will compare and contrast a number of specialized CRM vendors for the wealth management industry.