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Wealth Management Outsourcing: Vendor Landscape

Outsourcing in wealth management is a relatively recent phenomenon. However, it has been gaining momentum in last four to five years and is expected to continue, according to the new report, Wealth Management Outsourcing: Vendor Landscape, from Celent, an international financial research and consulting firm.

Key findings of the report include:
• Wealth management firms continue to confront the lasting effects of the financial crisis. Lackluster market conditions, erosion in assets and client base, stringent regulations, increased client demands, and an increased focus on risk are having adverse impact on firms' revenues and costs. Many firms are choosing to outsource significant parts of their operation to be able to focus only on the core business.

• This report provides an overview of the vendor market. Fifteen industry vendors are included: Advent Software, Cognizant Technology Solutions (CTS), FIS, Genpact, HCL Technologies, iGATE, Infosys, Miles Software, MphasiS, Polaris Financial Technology Limited, SEI, State Street, SunGard, Tata Consultancy Services (TCS), and WNS. This list is not exhaustive but provides a good representation of different types of market players.

• Celent finds that the offerings by most vendors are broadly similar. All of them have developed strong expertise in mid/back office functionalities. Support for front office is relatively less developed in general. This is due to the fact that wealth managers are still reluctant to outsource front office functionalities. However, things are changing as firms look to outsource more front office functions. It needs to be mentioned that wealth management outsourcing is still a niche area compared to many of these vendors' overall suite of offerings, and many have recently started to offer it as a full service. As the market evolves and vendors build on their expertise over the next 18 to 24 months, the differences in their offerings will become clearer.

• Cost cutting remains the primary driver behind adoption of outsourcing, which typically can save 20% to 30% of costs over a 3 to 5 year period. Secondly, outsourcing also offers easy scalability options; this is more relevant now as firms are either cutting down or closing operations in certain markets, while looking to expand in others - all in a short period of time. Time to market has therefore become critical. Data management, especially in large organizations offering multiple services, is another aspect that firms are looking to outsource.

• It is expected that the focus will slowly shift from IT outsourcing to business process outsourcing. A number of vendors are already witnessing rapid growth in their BPO services revenue, even though IT services growth remains modest. This trend is occurring in overall offerings, and the wealth management segment is likely to follow the same direction.

• In terms of functionalities, the trend is likely to shift towards front office outsourcing, as wealth managers, primarily in the US, take a more aggressive approach. In the future wealth managers will increasingly engage outsourcing providers in the areas of client-facing technology, advisor- / relationship manager-facing technology, channels, data management, CRM, client reporting, providing mobile presence, portfolio management / order management for execution services, and seamless integration of channels for various products and services delivery.

• Consolidation of vendor relationships is likely to continue. Firms will engage with two to three vendors as their strategic partners. This is likely to have an impact on the vendor landscape. Large vendors will look to add to their existing solution to offer an end-to-end wealth management offering. On the other hand, small and medium-size vendors, which do not have resources and scale, will look to focus on niche areas and look to serve the Tier II and Tier III segments of the market.