While many firms will have slashed their budgets in the aftermath of the financial crisis, wealth managers’ spending on technology is likely to reach $3.7 billion in 2010 – an increase of 5 per cent on last year – according to new research by Boston-based research and consultancy firm Celent.
Looking back over 2009, Celent found Europe to be the largest market in terms of wealth management IT spending, with North America coming in a close second, while the Asia-Pacific region came in a distant third. However, despite the large differences in the size of these markets, Celent’s research would indicate that Asia-Pacific is perhaps the healthiest market as the only one not to have backslid in 2009.
Total European IT spending was $1.6 billion last year (7 per cent down on 2008), but Celent predicts that this year’s total will show growth of some 5 per cent – barring unexpected economic events. IT spending in North America was $1.5 billion in 2009 (down 8 per cent from the previous year), although again Celent foresees a recovery this year – albeit at a slower pace of 4 per cent growth in 2010.
Meanwhile, wealth management IT spending across the Asia-Pacific region totalled $0.63 billion in 2009, representing a 5 per cent increase on the year before. Celent expects a further $0.68 billion to be committed to IT spending in the region this year – an annual growth rate of 8 per cent – the majority of which is likely to be allocated to front-office technology.
Celent’s optimism for wealth management IT budgets in the Asia-Pacific region chime with the firm’s assertion that Asia presents the biggest growth opportunity for wealth managers. While the high net worth populations of the US and Europe are expected to grow at around 2.6 per cent and 3-3.5 per cent per annum respectively over the next three years, Celent anticipates that Asia’s HNW population will grow by 6-8 per cent until 2012.
Such predictions should however be seen in the context of the Asian market’s relative size and composition: in 2009 countries in Europe accounted for around 45 per cent of the HNW population across the three regions, while North America remains the single biggest market for wealth managers. North America also has the highest proportion (1.8 per cent) of total households in the HNW and UHNW segment as compared to Europe (1.5 per cent) and Asia (0.1 per cent).
However, it is not rising numbers of high net worth individuals alone which will push up technology spending by the industry; Celent foresees that many projects that were put on hold in 2008/09 - as firms braced themselves for a profit squeeze - will now come to fruition. Moreover, although a tentative recovery is now underway, firms remain under pressure to improve their efficiency and differentiate themselves from competitors, and many are coming to view IT development as key to achieving these goals.
This was borne out by a recent survey conducted by LoudHouse on behalf of Callatay & Wouters which found that risk management, compliance and securing a solid customer base were respondents’ primary concerns going into 2010. Added to this these priorities is the potential growth of the global wealth management market, as predicted by Celent, leaving firms asking a lot of their IT systems. “It is clear that wealth managers are prioritising IT as a way to pull themselves out of the downturn,” Marc de Groote, chief executive of Callatay & Wouters, told WealthBriefing in reaction to the Celent report.
“In times of tighter regulations and tougher market competition, it is of paramount importance that banks can rely on up-to-date and flexible IT… the ability to gain a holistic view of clients’ portfolios is a critical factor to achieving true control of risk as well as maximising profit, both for customers and banks. Additionally, a truly holistic view will help support private banks in complying with upcoming regulations expected to be issued as a result of the financial turmoil,” said Mr de Groote.