(For an overview of our new report on Technology Traps, see here.)

One phrase dominates the discussion as wealth managers accelerate their digitisation in a bid to capture vital client experience and efficiency gains: legacy issues. It has, in fact, for years and still all but the newest firms - or those that have made bold modernisation moves - are struggling with legacy technology to some extent.

Yet change is in the air, according to SS&C Advent’s Stig Olsen, who sees attention now really turning to the question, “What do we do to really solve this issue definitively?” For a growing band of firms, putting real change off is no longer an option.

Impetus is coming from a dawning realisation of the true cost of legacy technology, it having a deleterious impact on so many areas of performance. Crucially, outmoded technology is a serious barrier to developing the leading client offerings firms need to compete. The fact that relationships increasingly play out in the digital sphere has dramatically raised clients’ data expectations and this, Olsen observes, is where legacy technology is making many firms fall down.

He explains: “Clients want access to ever more data that’s flawlessly correct, and they want it in real-time. Accuracy and speed both need to be in sync, but unfortunately legacy systems often stand in the way.

“Delivering data from your core systems faster than competitors is no advantage if it’s often wrong; similarly, delivering correct data painfully slowly leaves you far behind the premium offerings out there.”

The realities of real-time data
Moving from batch to real-time data has made clear to many firms just how difficult data extraction can be when working off a patchwork of legacy and bolt-on systems (possibly from an array of vendors). In a sector marked by a frenetic pace of change across regulation, M&A and technology, this is of course very often the case.

Just as significantly, demand for real-time data means that manual interventions can no long provide cover for systemic flaws. “Previously, inefficient processes or legacy technology could be hidden by having a team of 50 people working behind the scenes to generate monthly client reports,” Olsen says. “But now the expectation is for instant access to portfolio information, you can’t hide anymore.”

On top of this is the requirement to slash the burden on staff so they can focus on higher-value tasks, rather than be mired in manual workarounds as operational costs continue to bite – a need that will be particularly pronounced where compensation and competition for talent are rising.

Unlocking opportunities
Olsen further notes that only by resolving legacy issues can the industry unlock the opportunities for self-service it should pursue. “The sector is recognising that some elements of self-service might be foundational to delivering a great client experience by modern standards,” he says. “Moving select processes from the back-office to self-service can result in smoother, better service as well as compelling efficiencies, and so be a big win-win.”

The quest for true interoperability and efficient dataflows between multiple systems means APIs (Application Programming Interfaces) have become a crucial area of development, and adoption is expected to rocket in the next five years as the industry targets greater personalisation and automation. “However rich your data, it won’t help your clients if it’s inaccessible,” Olsen explains. “The availability of APIs - and therefore how efficiently you can get data out of your systems - dictates how achievable a premium offering is.”

As he emphasises, automation  in client reporting is a case in point, with advisors still often battling spreadsheets and a mix of systems that don’t “talk” to each other to create and validate static reports; whereas real-time, client-configurable access to immaculate portfolio information is increasingly “table stakes”.

Correspondingly, Olsen cautions that all automation efforts need to be built on rock-solid data foundations - lest manual work merely shifts focus, rather than being removed. “If you reduce manual input but have to spend that saved time on quality control and reconciling data, then you’ve gained nothing,” he points out.
 

Possible plans of attack
So, given their need to stem spiralling operational costs, deliver a far better experience for both clients and advisors, and reduce the regulatory (and reputational) risks of serving erroneous data, wealth managers are certainly not lacking motivation to kill off legacy issues. More vexed is the question of how to move off of legacy systems most intelligently, so that upheaval and expenditure are contained.

Olsen points to three main paths: component outsourcing, developing a parallel technology platform and migrating to a single-vendor strategy. Which to choose is a nuanced decision, with much depending on where a firm stands on its digitisation journey and what its priorities are.

-- Component outsourcing
Opting to outsource activities like reconciliations effectively outsources the task of keeping up to speed with the most efficient technology, making this a compelling option for firms choosing to focus exclusively on core competencies or those with more limited resources. The luxury of almost not needing to think about underlying technology has clear across-the-board appeal, however.

Yet alignment on service expectations is absolutely crucial to successful outsourcing relationships, cautions Olsen. “Focus on the service you are buying in the round, rather than the technology used to deliver that service,” he says.

--  Parallel platforms
Developing a parallel platform is far more radical – and effortful – path, but one Olsen increasingly sees pursued in the Nordics. Bravely, these firms are seizing on the need for technology overhauls as an opportunity for much wider reform, sweeping away legacy issues in their broadest sense.

He elaborates: “These firms are saying ‘Let’s just set everything up in parallel from scratch, correctly and with the new technology required, and then migrate everything over.’ For them, it’s about changing organisational and cultural elements that rest on the technology stack too.  Radical technology change can make it easier to ask ‘Is there a better, more efficient way to do things for our organisation and client base, instead of just twisting and tweaking what we’ve always done?’”

Tangible results in six months 
Although “greenfield” development may deliver the ide- al set-up long term, Olsen concedes that it is a daunting prospect which may consume more resources and time than firms have to spare. As a result, he sees single-vendor technology strategies finding increasing favour as a way to effect dramatic change with as little operational drama as possible.

“If you can find a provider with the competence, technology and capabilities to take on your entire business, then working with one vendor can slash the cost, risk and time spent on projects,” he says. “It is possible to achieve a lot and deliver some very tangible results in six months or even less if you choose the right partner.”

And time is certainly of the essence. “We could be looking at profit margins falling to a painful extent, and all the while clients’ expectations and competition will continue to track up,” Olsen argues. “Wealth managers need to deliver more value for the same costs, getting more out of their systems and personnel. This in turn is putting big pressure on vendors to develop efficient solutions and change programmes underpinned by that principle.”

Building the business case
Acknowledging the shared ambitions – and challenges – that should be inspiring wealth managers to throw off the shackles of legacy technology, what then differentiates the leaders from the laggards? For Olsen, this is a question of perspective and preparedness.

“Where management teams understand legacy issues cannot be allowed to linger on, they are jumping on to take a professional, structured approach to solving them now before revenues start to slip,” he says. “They will be able to make changes the right way and at their own pace.”

In worrying contrast are those that seem to be deferring definitive change almost indefinitely, until such point that irreparable damage may have been done. But although it may be extremely tempting to put off significant technology change, Olsen warns that we are entering an age where legacy weaknesses will be swiftly punished.

He sums up: “Disappointing on client experience could lead to gradual losses, but more likely, lots of revenue irrevocably gone almost in a flash. Doing everything you need to be competitive and efficient then will be too late.

“Your solution will never be better than the weakest link in your technology, and wherever you have an inefficiency or something that’s not working that will always negatively impact what you offer clients and how profitably you can operate. A lot of firms can’t live with legacy much more.”

This forms part of this publication’s latest research report, “Technology Traps Wealth Managers Must Avoid”. Download your free copy by completing the form below.