Well, there’s a new player in town – end-to-end third-party platforms. They’re like secret weapons that wealth and asset managers can use to tackle these challenges head-on.

These platforms bring some serious benefits to the table. They can help slash costs in the middle office and operations, open up exciting new business opportunities, and even create fresh revenue streams.

But here’s the kicker: picking the right platform isn’t child’s play. The top brass, including the CEO, must be in on it. It’s a two-step process. First, you’ve got to get a grip on your challenges, and second, take some savvy action to beat them.

Navigating Challenges in Wealth and Asset Management

Challenges abound! It’s a tricky trinity of rising costs, narrowing margins, and the ever-increasing demands of clients. Let’s break it down and see how these factors are reshaping the industry!

Note: Source information vetted from the BCG’s “Scalable Tech and Operations in Wealth and Asset Management.”

1. Escalating Costs in Technology and Operations

Major asset managers have seen their cost-to-income ratios (CIRs) gradually increase since 2018, reaching 74% in 2022. Smaller asset managers with less than $300 billion in Assets under Management (AuM) have experienced a more pronounced jump, reaching 78%. Meanwhile, in the wealth management sector, smaller players with AuM below $150 billion have encountered an even steeper rise, surpassing 82% in 2022. What’s fueling this surge in costs? It’s technology spending.

Notably, investments in application development and hosting have surged, reflecting the growing demand for new capabilities and the migration to the cloud. Moreover, the ever-evolving landscape of regulations adds another layer of complexity and cost.

2. Shrinking Margins and AuM

The industry faced an unprecedented event in 2022 when global Assets under Management declined by around 15%. This unfavorable outlook is exacerbated by the persistence of higher interest rates and sluggish GDP growth anticipated through 2025. Wealth and asset managers also find themselves caught in a web of relentless margin compression due to several market trends, including the growing presence of passive investments, digital competition, and the consolidation of industry giants. The result? A decline of 3% in return on assets (ROA) annually from 2018 to 2021.

Moreover, product fees have taken a substantial hit, with active funds experiencing an 11% decrease and passive funds witnessing a significant 35% drop since 2017. Model portfolio services have also seen a 12% margin reduction since 2017. Asset-servicing margins for typical wealth management mandates have plummeted to as low as 12 basis points. These challenges can be attributed to technology integration, scale advantages, and increased transparency.

3. Intensifying Client Demands

Client expectations are continuously on the rise, prompting wealth and asset managers to make significant investments. Notable areas of expenditure include hybrid advisory services, direct indexing, and managed portfolio solutions, all geared toward enhancing personalization. Clients increasingly seek complete transparency in their investments, particularly concerning sustainability and alignment with personal values. While fintech is a crucial enabler for wealth and asset managers to transform their business models, operational adjustments are equally critical for effectively adapting to the evolving landscape.

Given the formidable nature of these challenges, wealth and asset managers are exploring a viable solution – partnering with third-party service providers. As the industry transforms, outsourcing essential services becomes an attractive pathway to achieving operational efficiency and cost-effectiveness. This strategic shift allows wealth and asset managers to focus on their core competencies while efficiently addressing their multifaceted challenges.

Adapting Tech Solutions in Wealth and Asset Management

This surge directly responds to the escalating demand for streamlined digital experiences and automated operations. Notably, the share of third-party technology investment has soared by over 10% since 2018, impacting routine operations and strategic initiatives within wealth and asset management firms.

To comprehend these transitions, let’s deconstruct the conventional technology stack utilized by wealth and asset managers, identifying six key layers:

1. Digital Front End and Engagement: This layer is designed to provide multi-channel interfaces that manage customer and advisor interactions seamlessly.

2. Smart Workflows: These workflows structure, orchestrate, and automate processes, integrating them with various business solutions.

3. Core Business Capabilities: Offering product and service logic across the value chain, covering advisory, portfolio management, execution, and asset servicing.

4. Central Data and Analytics Platform: Acts as the hub for data ingestion, storage, and governance, enabling a unified client view and supporting AI and analytics-driven use cases.

5. Core Booking System: Functions as a central repository for customer and account data and transaction processing and facilitates reporting and third-party integrations.

6. Cloud Infrastructure: Essential for scalable computing and network resources, providing foundational services from developer tools to cybersecurity.

The most notable shift towards third-party solutions is observed in infrastructure and data layers, primarily driven by the migration of workloads to the cloud. A select few “hyperscalers” have seized the market by swiftly scaling computing resources and software architecture, a trend gaining traction due to cloud providers’ compliance with stringent data privacy and cybersecurity norms. Conversely, wealth and asset managers find opportunities for differentiation in the upper layers by focusing on well-designed customer journeys and seamless multi-channel experiences.

Embracing Novel Approaches to Technology and Operations

Traditionally, prominent players favored the in-house development of complex, stable operating models across major sections of their technology stacks. However, the evolving landscape of customer needs and the prevalence of software as a service (SaaS) solutions have led to an increasing adoption of a “best-of-breed” approach. This strategy involves integrating an expanded range of third-party solutions throughout the tech stack. While it expedites access to innovation, its successful implementation demands robust integration capabilities and rigorous architectural standards to manage the inherent complexity.

Moreover, as integration challenges persist, a growing trend is the deployment of end-to-end vendor platforms by financial institutions, covering non-differentiating activities. This approach significantly reduces the necessity for proprietary technology development and, in some instances, diminishes the reliance on in-house staff. Certain vendors offer outsourcing solutions for routine middle office and operations functions.

Although these vendor-based options were initially popular among smaller players or minor office locations of larger firms, they’ve recently gained traction among major incumbents. The pursuit of faster time-to-market strategies fuels this shift, the broader embrace of open finance and ecosystem use cases, and the scarcity of in-house tech expertise.

Of course, each approach has distinct benefits. The “in-house-first” and “best-of-breed” pathways afford control over technology specifications, customization, and differentiation while ensuring control over operational and security risks. Meanwhile, end-to-end platforms bring advantages like lower maintenance costs, automated upgrades, simplified integration, and greater flexibility for operational changes. For firms lacking the scale to independently develop and manage their solution stacks, an end-to-end platform emerges as a compelling option.

Taking the Bold Step

Wealth and asset management firms face significant challenges, prompting a need for digital and operational overhauls. Traditionally, in-house initiatives have encountered delays and budget issues, leading to a search for new solutions.

One emerging solution involves transferring certain tech aspects to end-to-end platforms. Vertically integrated providers offer services across the value chain, potentially leading to substantial cost savings. Alternatively, the “best-of-breed” approach allows institutions to pick solutions from various vendors but reintroduces some risks.

1. For leaders (CEOs, CTOs, and COOs), strategic decisions hinge on key considerations:

2. Flexibility: Does the new setup facilitate swift responses to market changes?

3. Coverage: Can it serve diverse markets and tap into new opportunities?

4. ROI: Is there a strong business case for savings or new revenue streams?

5. Vendor Reliability: Can the vendor be trusted for security, reliability, and innovation?

6. Alignment: Is the vendor relationship sustainable considering potential costs?

7. Migration: Can migration occur without compromising project benefits?

The post Is the Clock Ticking for CEOs to Revolutionize Wealth and Asset Management Tech and Operations? appeared first on Indium.

Let’s look at a few reasons why modernizing a data warehouse is essential and highlight the benefits it brings.

Traditional data warehouses have served organizations well for many years. These systems typically involve batch processing, where data is extracted from various sources, transformed, and loaded into the warehouse periodically. While this approach has been effective for historical analysis and reporting, it falls short when it comes to real-time decision-making. With the rise of technologies like the Internet of Things (IoT), social media, and streaming data, organizations require access to up-to-the-minute insights to gain a competitive edge.

Why Modernize a Data Warehouse?

Modernizing a data warehouse is crucial for several reasons. First and foremost, it enables organizations to harness the power of real-time data. By integrating data from multiple sources in real-time, businesses can gain immediate visibility into their operations, customer behavior, market trends, and more. This empowers decision-makers to respond quickly to changing circumstances and make data-driven decisions that drive growth and efficiency.

Moreover, modernizing a data warehouse enhances scalability and agility. Traditional data warehouses often struggle to handle the increasing volumes and varieties of data generated today. However, by adopting modern technologies like cloud computing and distributed processing, organizations can scale their data warehousing infrastructure as needed, accommodating growing data volumes seamlessly. This flexibility allows businesses to adapt to evolving data requirements and stay ahead of the competition.

The Need for Modernizing a Data Warehouse

Evolving Business Landscape: The business landscape is experiencing a significant shift, with organizations relying more than ever on real-time insights for strategic decision-making. Modernizing your data warehouse enables you to harness the power of real-time data, empowering stakeholders with up-to-the-minute information and giving your business a competitive edge.

Enhanced Agility and Scalability: Traditional data warehouses often struggle to accommodate the growing volume, velocity, and variety of data. By modernizing, organizations can leverage scalable cloud-based solutions that offer unparalleled flexibility, allowing for the seamless integration of diverse data sources, accommodating fluctuations in demand, and enabling faster time-to-insight.

Accelerated Decision-Making: Making informed decisions swiftly can mean the difference between seizing opportunities and missing them. A modernized data warehouse empowers organizations with real-time analytics capabilities; enabling stakeholders to access and analyze data in near real-time. This empowers them to make quick decisions swiftly, leading to better outcomes and increased operational efficiency.

Benefits of Modernizing a Data Warehouse

Real-Time Decision-Making: Modernizing a data warehouse enables organizations to make timely decisions based on the most up-to-date information. For example, an e-commerce company can leverage real-time data on customer browsing behavior and purchasing patterns to personalize recommendations and optimize marketing campaigns in the moment.

Enhanced Customer Experience: By analyzing real-time data from various touchpoints, organizations can gain deeper insights into customer preferences and behaviors. This knowledge can drive personalized interactions, targeted promotions, and improved customer satisfaction. For instance, a retail chain can use real-time data to optimize inventory levels and ensure products are available when and where customers need them.

Operational Efficiency: Real-time data management allows organizations to monitor key performance indicators (KPIs) and operational metrics in real-time. This enables proactive decision-making, rapid issue identification, and effective resource allocation. For example, a logistics company can leverage real-time data to optimize route planning, reduce delivery times, and minimize fuel consumption.

Wrapping Up

Modernizing a data warehouse is no longer an option but a necessity in today’s data-driven landscape. By adopting real-time data management, organizations can unlock the power of timely insights, enabling faster and more informed decision-making. The benefits extend beyond operational efficiency to include improved customer experience, enhanced competitiveness, and the ability to seize new opportunities as they arise. As technology continues to advance, organizations must prioritize data warehouse modernization to stay agile, remain relevant, and  flourish in a world that is increasingly centered around data.

The post Driving Business Success with Real-Time Data: Modernizing Your Data Warehouse appeared first on Indium.