ey wealth managementey wealth management platform market survey 2014 | 5 executive summary the...

EY Wealth Management Platform Market Survey 2014

of outsourced technology 12

Regulatory landscape 17

Table of contents

2 | EY Wealth Management Platform Market Survey 2014

Introduction 3

Respondent profile 4

Executive summary 5

Strategic needs and initiatives 6

Outsourcing 9

Wealth management’s adoption

3EY Wealth Management Platform Market Survey 2014 |

Introduction For our latest survey on wealth management servicing platforms, we interviewed chief operating officers (COOs); chief technology officers (CTOs); chief finance officers (CFOs); and heads of technology, operations or business in wealth management business units of 13 wealth management firms and private banks across the United States.

Our aim was to gather insights from these industry leaders, who not only can affect and influence boardroom decisions on long-term vision and strategies of their firms, but also influence a secondary market of wealth management business solution providers that perform specialized functions for these firms, such as reporting, trade order management, asset servicing, research or investment management.

Our survey focused on these specific areas:

• What are the current and future strategic needs and initiatives of wealth management firms in the US?

• How do these firms look at outsourcing (operations and technology) for meeting their strategic goals? What are the drivers and inhibitors to outsource their technology and operations?

• How are they adopting outsourced technology platforms in the wealth management business?

• What is the impact of the regulatory landscape on outsourcing in particular, and on wealth management operations and technology infrastructure in general?

Banks are constantly evaluating their business models; front-, middle- and back-office operations; and their technology stack to deliver more (a wider range of financial products and services) and deliver better (through various distribution channels and improved client touch points) to their clients. Such initiatives include the following:

1. “Deliver the bank” and not just a particular line of product or business. For example, private banking solutions could include commercial banking solutions, such as credit card services, as well as wealth management solutions, such as estate planning, trust services, brokerage and insurance. Are the banks consolidating their business functions (technology and operations) across multiple lines of business to gain operational efficiencies?

2. Focus on core business capabilities while shedding or outsourcing non-core activities. Firms have set their eyes on building a revenue model around their core competencies and a targeted client segment. Some firms have private client services to cater to the high-net-worth (HNW) clients, while some are focusing on a mass affluent market. Banks are looking to augment fee-based services, such as advisory services, goals-based planning and portfolio management, while outsourcing non-core functions, including Customer Relationship Manager/Management (CRM), research, risk and compliance, and back-office functions, including client and regulatory reporting, reconciliation, settlements, fee billing and tax services. How are they looking to achieve this strategic shift and alignment?

3. Use of technology (mobility). Banks recognize that technology is evolving much more rapidly now compared to a few years ago, and mobility is no exception. The emergence of low-cost, open-source tools and widespread mobile coverage means customers, advisors and portfolio managers want more data and services delivered to them through their handheld devices. Wealth and asset management firms recognize that it is increasingly harder to keep pace with technology. How do they mitigate this risk around obsolescence and path-breaking innovations? Are they more willing to “buy” rather than “build” or is technology not such a key criterion in the wealth management space?

4. Integrated or best-of-breed solutions. As these firms buy more dedicated solutions (best of breed) and assimilate them into their existing infrastructure, do they face data quality or integration issues? Would they rather go for integrated platforms to support their breadth of business functions and circumvent the problems of data and integration? How do they weigh infrastructural stability, operational efficiency and best-of-breed capabilities?

5. Regulatory landscape and outsourcing. How are cloud services impacting wealth management businesses and infrastructures? With increased scrutiny around information security and regulatory compliance, are firms pushed toward more insourcing or adopting solutions hosted inside their firewalls, or are they still amenable to outsourced services delivered through the cloud?

We hope this survey provides insights and clarity around these questions.


Respondent profileFor this survey, we interviewed 17 industry leaders (CTOs, CFOs, COOs and heads of business and operations) from 13 wealth management firms and private banks. These firms varied in size (total assets, assets under administration and management), geographical areas of operations (number of states they operated in or number of branches) and even target market segment (from mass affluent or HNW to ultra HNW).

In order to avoid a selection bias and a high standard deviation, a number of criteria were used for categorization. We finally settled on assets under management (AUM) under wealth management businesses. This gave us a good dispersion across categories with relatively lower standard deviation.

Firm profile

By AUM under wealth management business (in $ billions)

Category # of respondents

AUM < $50 (small) 6

$50 < AUM < $150 (medium) 3

AUM > $150 (large) 4

Grand total 13

Executive profilesFor the 17 executives who we interviewed, the following is the respondent profile based on the organizational division that they represented.

Organizational division Count

Business 5

Operations 6

Technology 6

Grand total 17

The following is the coverage of executives within the various sizes of firms covered in the survey (size is by wealth management AUM).

Spread of executive roles within firms

Large (AUM > $150) 5

Business 1

Operations 1

Technology 3

Medium ($50 < AUM < $150) 6

Business 3

Operations 1

Technology 2

Small (AUM < $50) 6

Business 1

Operations 4

Technology 1

Grand total 17


Executive summaryThe industry leaders are indeed re-evaluating their operating and growth strategies. The survey reaffirms that technology and outsourcing are still key considerations toward achieving their growth agendas and targets. Here are some of the key findings of our survey.

• The future is advisory. The crisis had undermined the credibility of the financial analyst, but as clients realize that managing money by themselves is still riskier, the emphasis on advisory is back. Clients demand and firms realize that advisory has to improve significantly. Fee-based services and managed accounts are major sources of revenue streams and more so for HNW clients. Firms are spending to improve their advisory platforms and related client and advisor touch points. They are also looking to improve the investment management process, moving away from the modeled investment approach and preparing to provide investment discretion (more guided than modeled) to their clients. Some of the top initiatives of wealth management firms over the next one to three years are client and advisor experience, investment management, goals- based planning, and digital and mobile strategies.

• Everyone outsources (more technology than operations). All firms interviewed in this survey outsource for an improved bottom line (reduced cost) or to free up capital or shed non-core activity. Technology outsourcing is more common than operations outsourcing (or, Application Service Provider is a more preferred delivery model of outsourced solutions than BSP). Smaller firms (AUM < $50 billion) have had a better experience with outsourcing than the bigger firms.

• Technology platform (buy rather than build). The pace of change and innovation in technology is unprecedented, and firms are finding it increasingly difficult to keep up. Technology is increasingly being considered a hindrance rather than an enabler for business. Smaller firms (AUM < $50 billion) are more nimble and agile in keeping up with technological changes, while the larger firms (AUM > $150 billion) find more of their technology stack as legacy

or outdated. Firms are now more willing to buy (invest in new) rather than build new technology solutions and capabilities. Cost and obsolescence are the primary drivers to invest in new solutions and platforms.

• Outsourced solutions or insourced solutions. Small firms (AUM < $50 billion) are open to outsourced solutions across a wider range of wealth management business functions (e.g., investing, advisory, relationship management, product management, investment processing), while larger firms are more likely to keep these insourced (they prefer to buy and customize or maintain their homegrown solutions). Investing is ranked highest in terms of suitability for an outsourced solution.

• Best-of-breed solutions over an integrated platform. Firms overwhelmingly prefer best-of-breed solutions to an integrated wealth management platform. While isolated best-of-breed solutions do perpetuate integration and data quality issues, firms are willing to take the risk. Firms are looking for flexibility to integrate or add on specialized or other enterprise solutions. An integrated solution seems more like a “dream scenario” (a silver bullet for all stability and integration issues) that still doesn’t exist. If it does, some feel it could not take up firms’ specialized needs or it would entail a heavy initial investment that firms mostly do not have an appetite for or don’t see a value proposition.

• The regulatory landscape will spur outsourcing. Client reporting and portfolio management appear to be feeling the most regulatory pressures. Regulatory spending is not going to go down in the future. Opinions are evenly split if it will go up further or stagnate. Much like the pace of change in technology, the pace of change in regulatory and compliance mandates is going to spur outsourcing. Rather than constantly evaluate or change their systems for compliance, firms see outsourcing as a way of sharing the risk. They are looking for a partner that is equally vested in security and compliance, is prompt and is reactive to new mandates and regulations.


What are the areas of wealth management that you expect the most growth from in the next three to five years?

What percentage of your capital budget is focused on strategic needs vs. maintenance or tactical projects?

0 2 4 6 8 10 12 14

AdvisoryTrust

BankingBrokerageInsurance

Other

< $50b $50b−$150b > $150b

Strategic Spend

Tactical Spend

51%49%Strategic spend

Tactical spend

What are the current and future strategic needs and initiatives of wealth management firms in the US?

Advisory was identified as a key growth area by all firms• Within banking, security-based lending and card services were

identified as expected high-growth areas.

• Other growth areas highlighted by firms included asset management.

• Advisory includes fee-based advisory services as well as robo-advisors.

“We would look at vendors for brokerage. We see a lot of growth in this area.” (Vice chairman, small bank)

“[We are moving] from [being] product centric to solution centric [organization]. Noticing growth particularly in the affluent market – 12% - 15% CAGR. [Clients with] $1 Million - $3 Million is the sweet spot. [They are] looking at holistic planning.” (CTO, midsize bank)

“Expect advisory to have the most growth followed by banking. Over half of their client account types are fee- based managed solutions. Clients are looking more for a value proposition from their advisors.” (CTO, midsize bank)

• Strategic versus tactical spend of capital budget was fairly even across firms, with strategic only slightly higher than tactical.


What are the areas of wealth management that you expect the most growth from in the next three to five years?

Are your wealth management lines of business, e.g., investment management, trust, brokerage, aligned under a common organizational structure?

Strategic Spend

Tactical Spend

51%49%Strategic spend

Tactical spend0123456789

Yes

No

< $50b $50b−$150b > $150b

Client and advisor experience and investment management are top strategic initiatives • Client and advisor experience and investment management

emerged as top strategic initiatives and areas of spend.

• “Other” responses included targeting the recipients of first- generation wealth transfer, as well as driving merger and acquisition activities.

Wealth management organizational structure • A number of small firms specified that their wealth management

lines of business are not aligned under a common organizational structure.

• All midsize firms that responded have aligned their wealth management lines of business under a common organizational structure.

“I think client onboarding is being impeded. Technology is behind here and contains massive manual work. Client servicing, e.g., e-signature forms.” (CTO-wealth management, midsize bank)

“More process improvement around portfolio management. Systems that support that business. Example — model management and rebalancing. The technology that enables us to make investment decisions.” (COO, small bank)

“ ... not consolidated, trust is in corporate, brokerage in institutional, revenue is split between front, middle and back office.” (CIO, large bank)

0 2 4 6 8 10 12 14

Client/advisor experience

Investment management

Digital/mobile strategy

Goals based planning

Financial planning

Data strategy/predictive analytics

Compliance

Other

Asset servicing

Enhancing product offerings

< $50b $50b−$150b > $150b

Enhancing product offerings

Asset servicing

Other

Compliance

Data strategy/predictive analytics

Financial planning

Goals-based planning

Digital/mobile strategy

Investment management

Client and advisor experience


If investment discretion is permitted, to what degree is it allowed?

Limited Somewhat Complete

< $50b $50b−$150b > $150b

Investment approach varies • A single investment approach was not followed by the surveyed

firms. Regardless of size, they all embraced model, guided and discretionary approaches. The model approach is the most common.

• Most of the respondents mentioned that though they had a well- defined repository of models, some amount of discretion was allowed for flexibility.

“Want to provide more flexibility [to our clients] — flexibility with asset class. I [as a client] want growth but I may not be interested in a particular asset class. The asset classes roll up to a model, and we want to provide more asset classes within the model.” (CFO, midsize bank)

• Firms saw more discretion allowed in the future to accommodate specific needs of their clients (especially HNW clients).

Is your investment approach more focused on a model or guided portfolio approach, or are portfolio managers allowed to take discretion in selecting investment options?

Model Guided Discretion OtherModel Guided Discretion Client-segmented(fully managed based on

the client segment)


Do you outsource operations, technology or both?

< $50b $50b−$150b > $150b

0

1

2

3

4

5

6

7

8

9

Operations Technology Both

How do these firms look at outsourcing (operations and technology) for meeting their strategic goals? What are the drivers and inhibitors to outsource their technology and operations?

All surveyed firms outsource• All firms responded that they outsource some portion of their

technology, operations or both.

• Most respondents agreed they would never outsource any functions that were client facing or client interacting.

• Several respondents indicated that although they outsource where necessary, they would prefer to remain in-house with operations and technology.

• “We would never outsource client servicing or client reporting; would potentially entertain middle and back office operations but not where there is client touch.” (COO-wealth management, large bank)

• “Our firm does some outsourcing, where efficiency dictates, but we have a preference to stay in-house/on-shore and ultimately own what we can do in-house.” (COO-wealth management, small bank)

• “The rationale for outsourcing is that technology and operations are not the core competency of the firm.” (COO–PWM, midsize bank)


0 2 4 6 8 10 12 14

Trade Order Management

Portfolio Accounting

CRM

Portfolio Management

Cash Management

Client Reporting

Asset Servicing

Planning

New Account Opening

Reporting

Financial Management and Admin

Research

Client Servicing

Product Management

Practice Management

Technology Operations

Practice management

Product management

Client servicing

ResearchFinancial management

and administrationReporting

New account opening

Planning

Asset servicing

Client reporting

Cash management

Portfolio management

CRM

Portfolio accounting

Trade order management

Which areas of your business are outsourced today, from both an operations and a technology perspective?

Do you see outsourcing as a way to improve your firm’s bottom line, reduce risk or free up capital?

What would be (or are) the top business drivers for making a decision to outsource technology operations?

012345678

Improve bottom line Reduce risk Free up capital forhigher value or

revenue generativeareas

OtherFree up capital forhigher value or

revenue generationareas

Technology outsourcing more prevalent • More firms outsource technology than operations.

• The only area not outsourced today in any manner was practice management (vendor management, compensation management, service level agreement tracking).

• None of the firms surveyed outsource all of their wealth management processing and technology with a single BSP.

“ … integration [capabilities] is a critical component because of legacy enterprise systems.” (COO-wealth management, small firm)

“ … reduction in internal control may impact client service.” (Vice chairman, small bank)

“You shift the responsibility to third parties but you lose some control over it. That’s the dynamic that we are struggling with.” (CTO, welath management, midsize Bank)

Decision to outsource — cost is still the key driver• Improving bottom line was cited as the top reason for outsourcing

by firms under $150b AUM.

• Other reasons for outsourcing were speed to market and reducing complexity.

“ … but if it puts us at strategic disadvantage, no outsourcing.” (COO, small bank)

• Whether technology or operations, respondents overwhelmingly chose cost reduction as the key business driver for making a decision to outsource.

“We are starting to peel away at some of the technologies and only outsourcing to firms that are focused on specific areas.” (COO-wealth management, small firm)

“Quality is key — it’s not just a labor move.” (CTO, large bank)

“Outsource providers seem to be very good at day-to-day operations, but not so good on technology.” (COO, small bank)

0 2 4 6 8 10 12

Upgrading technologyRisk and Compliance

Cost reductionData consolidation

Scale and automationShed noncore activities

Other

< $50b $50b−$150b > $150B

* e.g., access to new technology, related vendor expertise

Other*Shed non-core activities

Scale and automationData consolidation

Cost reductionRisk and compliance

Upgrading technology


Whether you outsource today or not, which areas of your business do you think are best suited to business process outsourcing?

If you do outsource, what has your experience been like with outsourcing technology?

If you do outsource, what has your experience been like with outsourcing operations?

0 2 4 6 8 10

Investment Processing

Servicing

Other

Product

Investing

Relationship Management

Client On-boarding

Practice Development

Advisory

< $50b $50b−$150b > $150b

Advisory

Practice development

Client onboarding

Relationship management

Investing

Product

Other

Servicing

Investment processing

Other

Poor

Fair

Good

Excellent

< $50B

$50B - $150B

> $150B

˂ $50b

$50b−$150b

˃ $150b

Other

Poor

Fair

Good

Excellent

< $50B

$50B - $150B

> $150B

˂ $50b

$50b−$150b

˃ $150b

Wealth management capability areas best suited for outsourcing• Respondents were clear about not outsourcing any client-facing

business functions.

• Other areas considered for outsourcing are trust and mobility.

• None of the firms surveyed indicated they outsource completely with a BSP.

“I believe mobility is well suited for outsourcing — we simply don’t have the capability ourselves.” (Head of correspondent and advisor services, midsize bank)

”Probably areas where we are not using proprietary systems today … it all comes down to reputational risk.” (COO, small bank)

“Could consider anything but client touching or client impacting functions.” (COO-wealth management, large bank)

“We would look to outsource unique things that we don’t necessarily have core competencies in … ” (Head of corporate strategy, midsize bank)

“Managing multiple vendors is becoming very difficult.” (COO–wealth management, small bank)

“Outsourcing gets the job done. The technology from outside vendors is adequate.” (COO-wealth management, midsize bank)

“Depends on the vendor — some are not well capitalized so pose significant risk to us when we roll out; other cases it’s worked very well.” (Business development lead-wealth management, midsize bank)

Mixed experience with outsourcing• None of the respondents felt their current experience with

outsourcing, at any AUM level, was excellent.

• All firms under $50b had good experiences with outsourcing, whether operations or technology.


0 2 4 6 8 10 12

Dedicated

Hybrid

Is your current wealth management technology platform perceived as an enabler or a hindrance to business?

How are they adopting outsourced technology platforms in the wealth management business?

Technology organization model — enabler or hindrance?• Smaller firms do not have a dedicated wealth management

technology organization and feel that their technology platform is a hindrance to the business.

• An overwhelming majority of firms consider their wealth management technology stack a hindrance to their business.

• Many respondents cited other hindrances, such as infrastructure stability and lack of competitive and reliable technology platforms.

Is your technology organization fully dedicated to the wealth management business, or part of the larger organizational infrastructure (a hybrid)?

“We don’t have a technology organization dedicated to our wealth asset management business.” (COO, small bank)

“There is a perception that it is a hindrance — outdated and less reactive, but it really scales well and is an enabler.” (CTO–wealth management, midsize bank)

Enabler - easy to add products andsolutions

Enabler - scales well

Enabler - Other

Hindrance - outdated and less reactive

Hindrance -Other

< $50b $50b−$150b > $150b

Hindrance − other

Hindrance − outdated and less reactive

Enabler − other

Enabler − scales well

Enabler − easy to add products and solutions


What are the drivers to invest in newer platforms?

02468

1012

Cost

Grow

th

Obsolescence

Other

< $50b $50b−$150b > $150b

What percentage of your wealth management applications would you consider legacy or outdated?

How do you handle legacy applications? Are you planning to maintain them, or invest in newer platforms?

Firms prefer to buy (invest in new) rather than build• All respondents agreed that a portion of their wealth management

applications were outdated to some degree.

• Few large and medium firms plan to maintain their legacy applications rather than invest in new or build proprietary solutions.

Smaller firms more likely to support their wealth management business with outsourced solutions• A significant proportion of small and medium firms are planning to

use outsourced solutions across a wide range of business functions.

• Both large and small firms also indicated they would like to see an outsourced solution for data management (category other in the graph).

• Investing is where most of the firms would like to see an outsourced solution.

“We look at all [options]. We often look at investing in new and re-platforming legacy systems that are in-house.” (CIO, midsize bank)

• Respondents cited rising costs, growth in business and growing obsolescence of their current platforms as the drivers to invest in newer platforms.

• The ability to access newer technology and capabilities was also cited as a reason to invest in new platforms.

“Key features [we] look for in a vendor are: functionality, ease of use, cost, capabilities and technology.”(Vice chairman, small bank)

What areas of your business would you consider using an outsourced solution for in the future, where you don’t today?

Enabler - easy to add products andsolutions

Enabler - scales well

Enabler - Other

Hindrance - outdated and less reactive

Hindrance -Other

< $50b $50b−$150b > $150b

Hindrance − other

Hindrance − outdated and less reactive

Enabler − other

Enabler − scales well

Enabler − easy to add products and solutions

02468

1012

Build

Invest in new

Maintain

Other

012345

0 –25%

25 –50%

50 –75%

75 –100%

75%‒100%

50%‒75%

25%‒50%

0%‒25%

Product

RelationshipM

anagement

Advisory

Client On-boarding

Investing

Servicing

PracticeD

evelopment

Investment

Processing

Other

Other*

Investment

processing

Practice

development

Servicing

Investing

Client onboarding

Advisory

Relationship

managem

ent

Product

< $50b $50b−$150b > $150b

*e.g., planning and data management


Best of breed Fully integrated

0 2 4 6 8 10 12 14

Best of Breed

Fully Integrated

< $50b $50b−$150b > $150b

Fully integrated

Best of breed

Larger firms more likely to support their wealth management business with insourced solutions• Most of the firms surveyed said that systems that interface with

clients or have high touch points with them would likely be supported through in-house solutions, as that can be a differentiator.

• Large firms are more likely to use an insourced (external solution highly customized and integrated into their infrastructure or proprietary) solution.

“Anything client interfacing will be always supported through in-house solutions.” (COO, midsize bank)

“I believe we should own technology infrastructure because we’re an asset servicer and need 24/7 support. The savings I would get up front with outsourcing I would end up paying on the back end in support and servicing. However, if it were just for wealth management, I would outsource the infrastructure component.” (CTO, large bank)

What areas of your business will likely always be supported through insourced solutions?

A majority of firms prefer best-of-breed wealth management solutions• The firms that prefer fully integrated systems ultimately opt for

best-of-breed “unbundled components” because: • They consider the entire enterprise and not just their wealth

management business. • Fully integrated often lacks specialized processes that are unique

to wealth management (e.g., complex client structures and international hierarchies).

• They are reluctant to overhaul and spend on implementing a fully integrated suite. Many have cited that the initial investment would outweigh the value proposition.

• They prefer the capabilities of delivering a 360-degree view to the client (e.g., bank, brokerage, trust), but solutions don’t necessarily have to be “all in one.”

“Componentized solution is adequate in meeting the current needs. If you are building a global wealth management business, go with integrated solution.” (COO, midsize bank)

“Any radical change [is only possible] when there is a strong business case.” (COO, midsize bank)

“I do not believe one solution can do it all — we need the ability to tag on and/or append solutions as necessary.” (COO, small bank)

What is your firm’s platform preference — utilizing a fully integrated suite of applications built on a common infrastructure by a single provider or best-of-breed modular components?

Product

RelationshipM

anagement

Advisory

Client On-boarding

Investing

Servicing

PracticeD

evelopment

Investment

Processing

Other

< $50b $50b‒$150b > $150b

Other

Investment

processing

Practice

development

Servicing

Investing

Client onboarding

Advisory

Relationship

managem

ent

Product

25%

75%


0 2 4 6 8 10 12

Investing

Product

Relationship Management

Client On-boarding

Advisory

Servicing

Investment Processing

Practice Development

< $50b $50b−$150b > $150b

Practice development

Investment processing

Servicing

Advisory

Client onboarding

Relationship management

Product

Investing

Best-of-breed solutions are likely to perpetuate integration and data quality issues• Eighty-seven percent of wealth management firms admit to having

data quality concerns across multiple lines of their businesses.

• All firms surveyed, regardless of size, support at least 20 distinct wealth management solutions and, therefore, are prone to more data risks.

• Eighty percent of respondents have concerns that best-of-breed solutions would perpetuate issues with data storage and retrieval across lines of business.

“Bad thing about best of breed [solutions] is the integration issue. It becomes a challenge to provide an integrated solution. User experience is [often] fragmented.” (CTO, midsize bank)

“We prefer integrated but will choose best of breed. We are willing to take on data risks to get a better product … ” (SVP, large bank)

Do you have data quality issues across lines of business that utilize various support solutions?

Are you concerned that a componentized solution would cause or perpetuate issues with data storage and retrieval across lines of business?

Unbundled components preferred for investing capabilities• A majority of respondents prefer to have unbundled solutions

for investing.

• Most firms prefer solutions to be flexible enough to integrate best-of-breed, unbundled components.

“I do not believe an end-to-end solution for wealth management would work and it doesn’t really exist. The solutions need to have flexibility to integrate to other enterprise solutions — cost and system capabilities are interdependent.” (COO-wealth management, small bank)

“Everywhere we think best of breed should be used, we are using best of breed; we are constantly re-evaluating our systems.” (COO, small bank)

Which areas of the wealth architecture framework do you feel best-of-breed, unbundled solutions are necessary?

87%

13%

Yes No

80%

20%

Yes No


0

2

4

6

8

10

12

14

SunGard

Advent

Fiserv

Charles River Developm

ent

FIS

Thomson R

euters

SEI

Envestnet

FolioDynam

ix

Other

Vestm

ark

Citi OpenW

ealth

Fi-Tek

SS&C

< $50b $50b−$150b > $150B

Competitive landscape• SunGard was cited most often as an existing wealth management

platform provider by the respondents.

• A number of respondents did not rate the satisfaction level associated with their current vendors.

• Other vendors used by responding firms include Avaloq, Broadridge and LINEDATA.

“Looking at Envestnet for SMA account functionality.” (Head of correspondent and advisor services, midsize bank)

“Charles River Development — getting their UMA functionality together. As vendors work on cloud offerings front and center, they need to ensure data privacy and financial service regulations are met.” (CTO, large bank)

What technology providers are you using to support your wealth management business today?


What is the impact of the regulatory landscape on outsourcing in particular, and on wealth management operations and technology infrastructure in general?

Compliance and regulatory issues emerged as a major operational challenge• Ensuring that “Know Your Customer (KYC)” and client onboarding

documents remain in compliance with regulatory mandates were areas stated under regulatory issues.

• Business continuity and information security were common concerns.

• Some respondents mentioned that managing complexity due to the pace of change of business and rapid evolution of technology is a major challenge.

• Client-related issues spanning across marketing, branding, segmenting and servicing remained a challenge.

• Data management and financial advisor productivity were also cited.

“ … immense distraction associated with regulatory and compliance issues.” (COO, midsize bank)

“Technology is lagging vs. market. Experience, efficiency of advisor, and client experience.” (Head of corporate strategy–wealth management, midsize bank)

“Various platforms are driving different client experiences and potentially different investment recommendations.” (COO-wealth management, small bank)

What do you feel are your firm’s major operational challenges for the next 12 to 24 months?

30%

20%20%

20%

10%

Regulatory & ComplianceIssues

Managing Complexity &Technological change

Data Management

Client Issues

FA Productivity

Regulatory and compliance issues

Managing complexity and technological change

Data management

Client issues

FA productivity


Increase outsourcing

Decrease outsourcing

25%

50%

25%

0 - 10% 10 - 20% Above 20%

50%50%

Up

Stagnate





0%−10% 10%−20% Above 20%

Regulatory pressure and change leading to greater application of outsourced solutions• An overwhelming majority of respondents believe regulatory

pressure will lead to increased use of outsourced solutions.

• A small number of respondents are reluctant to relinquish control to third parties because it may pose a risk to maintaining a high level of client service.

“We can’t keep up with all the changes so I think it would lead to more outsourcing.” (COO, small bank)

“I do think it [regulatory pressure] leads to greater application of outsourced solutions, but providers have to get better at it; if they are building code around an outsource solution and not the core regulatory requirement, it makes it incredibly difficult to make changes.” (COO, small bank)

“In our environment, we still own the responsibility; [outsourcing] increases the risk. We have direct accountability [toward our clients].” (CTO, midsize bank)

Do you see regulatory pressure and change leading to greater application of outsourced solutions in your business or reversing the outsourcing trend?

Regulatory spending is not coming down

• None of the respondents believed capital spending on regulatory compliance would go down in the next three to five years. Midsize firms believe spending will remain stagnant.

• Respondents of larger firms have allocated over 30% of capital spending on regulatory compliance issues.

• Many of the larger firms expect to spend more on adhering to regulatory demands within the next five years.

“Keeping up with the regulatory mandates is one of our operational challenges.” (COO, small bank)

What percent of your current capital spend is on regulatory or compliance issues?

In which direction do you expect the regulatory spend to go in the next three to five years?

27.3%

72.7%


0 1 2 3 4 5 6 7 8 9

Cash Management

Financial Management and Admin

Practice Management

Research

Asset Servicing

Planning

Reporting

CRM

Client Servicing

New Account Opening

Portfolio Accounting

Product Management

Trade Order Management

Portfolio Management

Client Reporting

< $50b $50b−$150b > $150b

Client reporting

Portfolio management

Trade order management

Product management

Portfolio accounting

New account opening

Client servicing

CRM

Reporting

Planning

Asset servicing

Research

Practice managementFinancial management

and administrationCash management

EY wealth management contactsAnil Kant Senior Manager Ernst & Young LLP Financial Services Advisory +1 212 773 6633 [email protected]

Nalika Nanayakkara Partner Ernst & Young LLP Financial Services Advisory +1 212 773 1097 [email protected]

Charles Smith Senior Manager Ernst & Young LLP Financial Services Advisory +1 212 773 3518 [email protected]

Edward J. Tracy Partner Ernst & Young LLP Financial Services Advisory +1 212 773 6779 [email protected]

Scott M. Becchi Partner Ernst & Young LLP Financial Services Advisory +1 212 773 4388 [email protected]

Marcelo N. Fava Partner Ernst & Young LLP Financial Services Advisory +1 704 350 9124 [email protected]

Kelly J. Hynes Executive Director Ernst & Young LLP Financial Services Advisory +1 704 350 9046 [email protected]

Richard Hwang Executive Director Ernst & Young LLP Financial Services Advisory +1 215 448 3385 [email protected]

Client reporting and portfolio management bear the most regulatory pressure • Firm respondents believe most business functions play a role in

adhering to regulatory demands.

• Only large firms surveyed chose practice management as a functional area with regulatory concerns.

What functional areas of your business are of most concern to you from a regulatory perspective?

“They [vendors] need to make sure that all [regulatory] components are installed and functioning before they are due.” (COO, small bank)

“[There is a] lot of pressure regarding client disclosure, KYC. Regarding client risk profile, client documentation is a big issue. Other areas are vendor management, information security and business continuity.” (CTO, midsize bank)

“Fed starting to step in a lot more heavily on the vendor side ensuring due diligence of the vendors.” (CTO, large bank)

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EY is a leader in serving the global financial services marketplaceNearly 43,000 EY financial services professionals around the world provide integrated assurance, tax, transaction and advisory services to our asset management, banking, capital markets and insurance clients. In the Americas, EY is the only public accounting organization with a separate business unit dedicated to the financial services marketplace. Created in 2000, the Americas Financial Services Office today includes more than 6,900 professionals at member firms in over 50 locations throughout the US, the Caribbean and Latin America.

EY professionals in our financial services practices worldwide align with key global industry groups, including EY’s Global Wealth & Asset Management Center, Global Banking & Capital Markets Center, Global Insurance Center and Global Private Equity Center, which act as hubs for sharing industry-focused knowledge on current and emerging trends and regulations in order to help our clients address key issues. Our practitioners span many disciplines and provide a well-rounded understanding of business issues and challenges, as well as integrated services to our clients.

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