Digital Disruption in Wealth Management

Are you supporting tomorrow’s

wealth management with
yesterday’s technology?
Accelerating the transformation of wealth
management through digital technology
 Contents

Editorial .......................................................................................................... 3
Executive summary ......................................................................................... 4

A. The new playing field in wealth management .................................................... 6

Digital in wealth management – moving toward a new paradigm .................................................. 6
Five tactical steps to stay ahead of the curve .............................................................................. 11

B. Navigating the new digital reality: a guidebook for IT executives ....................... 12

Disruptive change on the horizon .............................................................................................. 12
Taking bold steps toward digital readiness: a guidebook for IT executives ...................................... 21

C. Aligning IT spend with the most important digital priorities .............................. 22

Understanding where IT spend adds the most value .................................................................... 22
Increasing transparency of where IT spend is going .................................................................... 28
Making IT spend more effective ................................................................................................. 29

D. Retooling the IT function for the digital age ..................................................... 32

Building a high-performance IT function ..................................................................................... 32
Making IT outsourcing deliver value ........................................................................................... 41

E. Forging an IT landscape ready for digital transformation ................................... 43

Modernizing core IT platforms for digital .................................................................................... 43
Building a digital-ready IT architecture ....................................................................................... 50

2 Accelerating the transformation of wealth management through digital technology

 Editorial
Wealth management is changing, and it is changing fast.
Multiple forces – from shifting client expectations and
innovative technologies to the emergence of disruptive
operating models and the market encroachment of
unconventional foes – are reshaping the playing field.
Within this new arena, the role of IT executives and
technology leaders is taking on paramount importance,
both at an operational and a strategic level. It is them that
organizations should increasingly entrust to guide the
business through the new digital reality.

In this edition of our Digital Disruption in Wealth

Management series, we look at the impact of digital on
the wealth management sector and its implications for
strategy and operations. We present a guidebook for IT
executives to help them navigate the new digital reality.
Our latest research into the state of technology in the
wealth management sector identifies the capabilities that
wealth managers need to build, and by when; how they can
transform their organizations for the digital age; and where
they should place their digital bets.

We trust that you will find our take on the subject an

interesting read, and we would welcome the opportunity to
meet with you personally to dive deeper into the results and
provide you with more details and insights we gained from
this study. Feel free to get in touch with us; a list of contacts
is provided at the end of this report.

Alex Birkin Robert Rümmler

Partner Senior Manager
EY Global Advisory Leader EY Switzerland Leader
Wealth and Asset Management Technology-enabled
Transformation in Wealth
and Asset Management

About the research

Our report provides qualitative insights on technology trends based on in-depth interviews with 30 senior IT
executives of leading wealth managers across 9 major hubs within Western Europe, Asia-Pacific and North
America.
Our report also contains quantitative benchmarking information regarding annual technology spend self-reported
by the respondents. This benchmarking captures key IT performance metrics across multiple dimensions and
over a three-year time period. To achieve a reasonable degree of comparability in IT-spend positions and
corresponding ratios for our benchmarking, we chose wealth managers with similar business models and client
value propositions.

Accelerating the transformation of wealth management through digital technology 3

 Executive summary

Wealth managers will increasingly engage head to within the industry and to identify what wealth managers
head in the field of technology. Granted, technology need to do to excel in the digital age.
has always been an important driver in the wealth
The strategic and operational ramifications of digital
management sector, but the intensity of change is about
transformation for wealth managers are significant and
to reach new heights. This report presents the findings
will leave no area of the business untouched. Technology
of a comprehensive research initiative on the state
leaders and IT executives are called upon to forge a
of technology within wealth management. It derives
response to the pressing challenges ahead, and to deliver
critical insights from research, including interviews with
effective solutions in multiple dimensions, such as digital
wealth managers globally, and from an EY proprietary
enterprise strategy, incubation and innovation, experience
benchmark database, that tracks key metrics in the sector
transformation, digital operations and digital trust.
over time. Our goal is to analyze the role of technology

Key findings

• Wealth management is exposed to change on multiple • There are large differences in how wealth managers
fronts, including evolving client needs, market entry of capture value from their technology spend. Three
nontraditional competitors and a shifting landscape of measures can help technology leaders increase the
emerging technology providers. For incumbents, these value delivered by their IT investments: improve
changes represent a source of both opportunity and strategic alignment, right-size demand for IT services
risk. There has never been a more pressing need for and forcefully manage complexity.
action.
• The “one-size-fits-all” operating model for IT is no
• IT executives need to take a central role in retooling longer an option. Each organization must find its own
their organizations for the digital age and aligning IT fit-for-purpose IT operating model that allows it to
spend with the most important digital priorities. Best- manage the slow evolution of core platforms while
practice wealth managers spend more on front-office simultaneously delivering completely new digital
initiatives and outsource more (and get more value for capabilities.
their money) than their peers.

4 Accelerating the transformation of wealth management through digital technology

• Wealth managers still tend to sideline technology that are reshaping the playing field. We conclude by
as a factor that merely supports and enables their providing five tactical steps that wealth managers can
core business, rather than recognizing it as a central take to help them stay ahead of the curve.
strategic element in its own right. IT talent in particular
• Section B presents the findings of our research and
is undervalued. Those who ignore market trends in
interviews with IT executives at wealth management
compensation and incentives are going to struggle
firms. We pinpoint the main sources of disruption, key
to close the tech talent gap, as they increasingly find
areas for digital investment, how emerging technologies
themselves in fierce competition with other industries
are being deployed and how priorities in the sector
for sought-after specialists.
are evolving. We then present our digital guidebook
• The benefits realized from IT outsourcing often fall designed to help IT executives navigate the new digital
short of expectations. Capturing maximum value often reality.
hinges on three elements: a capable and committed
• In section C, we drill down into the dimensions of digital
vendor, an optimized relationship between contracting
where investment can deliver the greatest value. After
parties and a strong retained IT organization.
establishing the importance of tracking and managing
• For too long, wealth managers have put off the long- IT costs, we deep-dive into proven methods wealth
overdue modernization of their core IT systems. Apart managers can use to obtain cost transparency and
from some leading players, most wealth managers are make IT spend more effective.
merely taking tentative steps toward the transformation
• Section D focuses on two critical areas: the operating
process. Our analysis underscores that a reticent
model of the IT organization itself and its approach
approach merely burdens organizations with avoidable
toward outsourcing. Each organization must find its
costs and a heightened risk exposure.
own fit-for-purpose IT operating model that allows it
• Almost all IT leaders acknowledge the need for to manage the slow evolution of core platforms while
optimizing application portfolios, but few tackle the at the same time delivering completely new digital
challenge head-on and drive for increased value capabilities. We also look into how well wealth managers
realization. Our analysis highlights how making are benefiting from external capabilities through IT
a conscious effort to consolidate, replace and outsourcing.
decommission applications pays off in the long run.
• Section E turns to the task of forging a digital-ready IT
The report is structured as follows: landscape. We focus on operational aspects such as
vendor selection, but also on replatforming strategies
• In section A, we present the case for mounting a
and their timing. We conclude with a discussion of
response to the challenges and opportunities emerging
approaches that have proven successful in gearing up IT
on the horizon. We explore in detail the technologies,
architecture for major transformations of the scope and
the business models and the formidable new players
scale needed for the digital age.

Accelerating the transformation of wealth management through digital technology 5

 The new playing field in wealth
A
management

Consensus is growing that wealth management is on the Client behavior too is changing across all segments.
cusp of a digital transformation, with all its opportunities More and more, clients want online tools and mobile
and ruthless ramifications. After years of mounting functionality as well as a seamless customer experience
geopolitical uncertainty, volatile markets and continued that is fast, convenient and intuitive.
margin erosion, the digital age could usher in significant
With investment in innovation and digitization, wealth
opportunities – but who will capture them?
managers can not only enhance efficiency through front-
The operating environment is changing. Technology is to-back automation and leaner processes, but also launch
lowering barriers to market entry, opening the gates to their operations toward the next horizon of growth by
a completely new set of formidable digital competitors upgrading client touchpoints and overhauling their value
armed with innovative capabilities and intent on far- propositions.
reaching disruption. Silicon Valley giants and agile
FinTechs are reshaping the playing field by elevating the
customer experience in many areas of interaction.

Digital in wealth management – moving toward a new paradigm

The race is on to take advantage of the opportunities accounts using video conferencing. Other wealth
emerging from, and manage the risks integral to, the managers are following suit and digitizing the
digital economy. The ability to innovate quickly and onboarding process using innovative technology, from
effectively is turning into a core asset. Examples of digital electronic signatures and online ID verification to
transformation within wealth management span the biometric authentication.
entire value chain, from client onboarding to fulfilment
• Advice. in Asia, a wealth manager has introduced
and trading. Consider these recent examples of the power
a suite of digital banking tools for tablets and
of digital transformation in wealth management:
smartphones. The app provides personalized content,
• Client onboarding. A wealth manager in Liechtenstein trading tools and opportunities for multichannel
has launched a service that allows clients to open collaboration.

6 Accelerating the transformation of wealth management through digital technology

• Sales support. Providers are designing tablet apps presentations. Today, a large majority of clients would
to support relationship managers in client meetings not hesitate to switch wealth managers in exchange for
by guiding them through a smart, adaptive and better digital capabilities.
interactive sales process, consolidating all relevant sales
• What can wealth managers learn from the new digital
functionalities in a single platform.
upstarts? Many of the digital trends are driven by
• Investment recommendations. A large global wealth robo-advisors, which are already capturing parts of the
manager has introduced personalized health checks wealth management value chain (see “Meet your new
that identify potential issues with personal portfolios, digital competitor” on page 9). Incumbents should take
offering tailored remedies to bring the health status the opportunity to learn from the approaches these
back to desired levels. digital upstarts are taking.
• Fulfillment and trading. A number of wealth managers • How can wealth managers benefit from the emerging
are building digital solutions that provide social ecosystems of FinTech providers? FinTechs are
marketplaces where customers can trade stocks and proliferating and delivering a myriad of innovative
funds online. business-to-business solutions. Many wealth managers
are seizing the opportunity to cooperate with FinTechs
As digital continues to transform wealth management,
in building new digital capabilities.
senior executives need to ask themselves three critical
questions: The following subsections provide some answers to these
pressing questions.
• What do clients expect in terms of digital
capabilities? It seems like only yesterday that wealth
managers interacted with clients almost entirely
by phone, email, electronic orders and face-to-face

Accelerating the transformation of wealth management through digital technology 7

 Meet your new digital client

What do wealth clients value? Our 2016 61% of clients aged between 18 and 34
survey of more than 2,000 wealth clients likely to consider robo-advisors, compared
globally1 exposes their preferences in with 51% aged between 35 and 50 or 24%
three dimensions: engagement, trust and aged between 51 and 71. Moreover, it is
performance. In terms of engagement, primarily the (HNW) segment that has the
clients value accurate information, self- greatest awareness of, and preference
service and digital channel capabilities. As for, robo-advice, not the mass affluent or
regards financial performance, they value a emerging HNW segments, as commonly
solid understanding of their financial goals assumed. Over 70% of HNW clients would
and having at their disposal a broad suite consider robo-advice, compared with 37% of
of products and tools. Through the prism mass affluent clients.
of trust, clients value transparency in fees,
Advances in technology are offering wealth
transaction security and data confidentiality
managers new ways of serving their clients.
the most.
However, research shows that meeting
Expectations of clients on their wealth enhanced client expectations can prove a
managers are changing, with digital major challenge for incumbents.
channels being a good case in point. A
At the same time, simply meeting
majority (59%) of the wealth clients state
expectations may not always be enough.
that digital will be their preferred channel
Big data, advanced analytics or artificial
for receiving advice within the next two to
intelligence are creating opportunities for
three years.
market leaders to stay ahead of demand
Most clients are also familiar with robo- by predicting trends and innovating their
advice offerings. Not surprisingly, younger offering.
generations are more likely to consider
robo-offerings than older age groups, with

1
“The experience factor: the new growth engine in wealth management,” Global Wealth Management Report 2016,
EYGM Limited, 2016.

8 Accelerating the transformation of wealth management through digital technology

Meet your new digital competitor

A raft of “automated wealth managers”, or A human client advisor is responsible for the
robo-advisors, are storming the gates. investment advice and typically focuses on a
holistic strategy.
Using algorithms to offer financial advice
for a fraction of the price of a real-life client In all cases, the robo-advisor model is built
advisor, they are growing at a rapid pace, on three key pillars:
doubling their assets under management
Rapid technology change cycles.
every few months.
Technology adoption is at the core of most
The service models of robo-advisors range robo-advisors. They are likely to integrate
from automated investment and self-service technology rapidly, especially in areas such
advice to guided advice. With automated as the effective deployment of mobile apps
investment, clients subscribe to wealth and harnessing artificial intelligence for
guidance and advice that is provided and client communication.
implemented without their explicit approval.
Self-service and automation. High levels
Once their account is opened, clients are
of automation and self-service allow robo-
typically treated at “arm’s length” and
advisors to keep their cost base low.
assets managed autonomously by the
wealth manager. Exchange-traded funds Passive investment strategies. Robo-
are often the preferred form of investment. advisors focus on passive investment
With self-service advice, digital tools are strategies, rather than discretionary
provided to support customers in identifying decisions. As a result, there is less, if any,
the scope of service to be provided and need for a human portfolio manager.
create wealth advice and guidance, typically Although the first wave of digital
in relation to specific needs, e.g., retirement competitors has penetrated the sector,
planning. they have so far only captured less than
Wealth managers assess clients with a small 1% of the global market.2 That said, robo-
number of basic questions to determine advice providers are gaining traction
their investment appetite and derive around the globe, and they will improve
recommended portfolios. In the case of their capabilities and expand – that much is
guided advice, remote advice is delivered certain.
over the phone or by video communication.
2
“Ask the Algorithm,” The Economist, 9 May 2015, The Economist Newspaper Limited.

Accelerating the transformation of wealth management through digital technology 9

 Meet your new digital service provider

The structure of the FinTech industry is capabilities with solutions from external
changing. While some them players, such providers, determining whom to collaborate
as robo-advisors, are bypassing incumbents with and how will be key.
and targeting end customers directly, a
Several forms of collaboration aimed at
growing number of FinTechs are entering
gaining a competitive edge are emerging.
the market with business-to-business
Acquiring a FinTech provides exclusive
offerings. These players are partnering with,
access to know-how and allows the wealth
and providing services to, wealth managers,
manager to upgrade internal capabilities.
rather than competing head-on.
By partnering with a FinTech, a wealth
Collaborating with a growing ecosystem manager can upgrade internal capabilities
of FinTech service providers can offer by jointly developing nonstandard solutions.
wealth managers the opportunity to And funding FinTechs allows wealth
reduce costs, comply more easily and managers to benefit from exclusive insights
effectively with regulation and, ultimately, and partake in some level of decision-
serve their clients better. An overarching making.
challenge for wealth managers is how
Across wealth management, digital
to “open up” structurally to leverage the
technologies are advancing rapidly. As the
evolving ecosystem of FinTech providers.
digital economy picks up speed, wealth
As wealth managers test new concepts
managers have no choice but to take action
and supplement their in-house technical
or risk falling behind.

10 Accelerating the transformation of wealth management through digital technology

Five tactical steps to stay ahead of the curve

The right digital offering can yield attractive benefits, cost-benefit ratio, whether that is video functionality for
ranging from revenue uplift and increased customer relationship managers or self-service for simple trading.
penetration to lower operating costs. Clearly, wealth
• Develop an overall digitization road map. A road map
managers need to act to avoid losing further ground. But
for digital transformation serves multiple purposes:
how strong is the case for change and what is the level of
establishing an implementation plan that sequences
urgency? What capabilities do wealth managers need to
the buildup of digital capabilities over a multiyear time
build and by when? How can wealth managers transform
horizon, galvanizing the organization on the ramp-up
their organizations for the digital age and where should
of resources and know-how around digital and outlining
they place their digital bets?
the investments needed both in the near and long term.
Taking five “no-regret” steps can help shed some light on
• Develop a high-level solution design, and define
these critical questions:
key architecture principles. It is important to seek
• Define digital objectives and criteria for success. consensus on high-level solution design and the
Wealth managers need to define the objectives they underlying architecture principles that will support
are pursuing and what they term “success.” Consider the operationalization of the digital road map. Key
the following examples: increasing client loads per questions to address include: Should user interfaces
relationship manager by 10%, reducing operational cost be designed for mobile devices first? Should iterative
by 15% or achieving client satisfaction ratios of 90% approaches and rapid prototyping be favored in order to
with digital offerings. optimize usability? Should a “buy-before-make” policy
be adopted, combined with in-house development only
• Determine the broader implications across the
for integration?
business and operating model. Successful digital
strategies require changes beyond process and In our view, the success of any digital transformation
technology. Additional areas to keep in mind: client hinges on five core elements: digital enterprise strategy,
segmentation, governance of digital channels, incubation and innovation, experience transformation,
operational readiness, digital product and service digital operations and digital trust.
content and organizational blueprint.
Given the increasing importance of technology, IT
• Assess the digital capabilities needed, and prioritize executives and technology leaders are uniquely positioned
their implementation. Evaluate digital capabilities in to take on a leading role in driving the transformation
terms of their impact (e.g., by assessing client demand) toward digital. In the next chapter, we present a
and the effort needed to implement them. The aim here guidebook for IT executives, designed to help them
is to identify the digital opportunities worth pursuing in navigate the new digital reality.
the short, medium and long term. Prioritization by key
stakeholders will surface those areas with the highest

Accelerating the transformation of wealth management through digital technology 11

 Navigating the new digital reality:
B
a guidebook for IT executives

As digitization spreads, players in the industry are will require IT executives to increase performance of the
dramatically expanding their use of IT to improve the IT function, build new capabilities and learn new skills.
effectiveness of business processes and gain access To gain a view of technology developments shaping
to new revenue streams. This development represents the agenda and to identify key priorities and trends, EY
an enormous opportunity for IT executives and asked IT executives (CIOs and heads of IT) across wealth
technology leaders to forge a new role as the drivers of management businesses globally to share their insights.
transformational change. Doing so successfully, however,

Disruptive change on the horizon

Wealth management is exposed to disruptive change on of IT executives in our research rate new compliance and
a number of fronts, ranging from regulation, emerging regulatory requirements and 70% emerging technology
business models (e.g., robo-advice) and technology trends, such as cloud, robotics or artificial intelligence,
developments (e.g., cloud, robotics, artificial intelligence) as major sources of disruption (Exhibit 1). Emerging
through to innovative IT processes, such as agile and business models, such as new means of advice delivery,
DevOps. is a development considered highly disruptive by 53%.
Only 31% view new IT processes, such as agile, DevOps
Main sources of disruption
or continuous delivery, as a major source of disruptive
From which sources do IT executives expect the bulk change.
of disruption to their wealth management business to
emerge from? Looking at the next two to three years, 87%

12 Accelerating the transformation of wealth management through digital technology

Exhibit 1

New compliance and regulatory requirements are still

perceived as the largest source of disruption to existing
business operations

What level of disruption do you expect over the next two to

three years from the following sources?
% of respondents who rate relevance as high to very high

New compliance and

regulatory requirements 87%

Emerging technology trends

(e.g., mobile first, robotics) 70%

Emerging business models

53%
(e.g., robo-advisors)

New IT processes,
(e.g., agile and DevOps) 31%

Source: EY analysis.

Accelerating the transformation of wealth management through digital technology 13

 By when do IT executives expect digital disruption to make in the medium term, i.e., within the next one to three
a visible and direct impact on their wealth management years (Exhibit 2). In contrast, 23% expect to see the
business? Most respondents (42%) believe that digital greatest impact within the next 12 months and 36% in the
transformation will be most relevant to their business next three to five years.

Exhibit 2

Wealth managers view digital transformation as most

relevant to their business within the next one to three
years

How relevant is digital transformation to your business in

the short, medium or long term?
% of respondents who rate relevance as high to very high

Relevant in the short term 23%

(within next 12 months)

Relevant in medium term 42%

(in one to three years)

Relevant in the long term 36%

(in three to five years)

Source: EY analysis.

Key areas of digital investment in ongoing and future investment (Exhibit 3). Data
analytics capabilities to support personalization of digital
Wealth managers are investing in digital capabilities
offerings are rated by 40% of respondents as central
in a number of areas, including technology (e.g.,
to their digital investment plans. Incorporating new
cloud, robotics, artificial intelligence), data analytics,
technologies (e.g., robotics and artificial intelligence) is
improvement of the customer experience and integration
considered an investment priority by 50% of respondents,
of third-party application programming interfaces (APIs).
while 37% prioritize integration of third-party APIs. Only
What areas are wealth managers prioritizing in 7% of respondents rate social media monitoring and
ongoing and future digital investment? In total, 63% of management as an investment priority.
respondents are prioritizing improvements to customer
experience and 50% omni-channel access for customers

14 Accelerating the transformation of wealth management through digital technology

Exhibit 3

Improving the customer experience and in omni-channel

access are viewed as the most important future digital
investment areas

How important are the following

areas for your ongoing and future digital investments?
% of respondents who rate relevance as high to very high

Improving the
customer experience 63%
(e.g., through customer service design)

Omni-channel access 50%

(e.g., multiple devices and channels)

Incorporating new technologies 50%

(e.g., cloud, big data, robotics,AI))

Data analytics capabilities 40%

(to support personalization of offerings)

Integration of third-party applications

(e.g., APIs)
37%

Social media
7%
monitoring and management

Source: EY analysis.

Accelerating the transformation of wealth management through digital technology 15

 Deployment of emerging technologies patterns, correlations and other insights; and blockchain,
the transaction database technology underpinning bitcoin
Emerging technologies have stepped out of the laboratory
currency.
and into corporate IT, where they are starting to deliver
concrete benefits measured by revenue growth and cost We asked IT executives what technologies were at the
reductions. High-profile examples include the cloud, top of their deployment agenda (Exhibit 4). Sixty-seven
with its ability to deliver digital power at low cost and in percent of wealth managers operate cloud technology
small increments; robotic process automation (RPA), the or are actively considering its deployment, 47% are
technology that mimics humans as it handles tasks within considering big data analytics, but only 33% are
a process; big data analytics, the array of technologies considering RPA.
that allows users to scan huge volumes of data for hidden

Exhibit 4

Cloud technology is the most deployed, followed by

big data analytics and RPA

Please indicate the level to which certain technologies are

deployed within your organization
% of respondents that agree or strongly agree

Cloud infrastructure
We currently operate cloud technology 67%
or are actively considering its deployment

Big data analytics

We currently operate big data technology 47%
or are actively considering its deployment

RPA
We currently operate robotics technology or 33%
are actively considering its deployment

Source: EY analysis.

16 Accelerating the transformation of wealth management through digital technology

Technology strategy for digital transformation to other business and support functions). Larger wealth
managers in particular are channeling most of their digital
Are digital investments being made predominantly
investment into the IT function, with 80% of respondents
inside the IT function or outside it? Most (67%) of the
in this segment confirming that their IT function is the
wealth managers in our sample state that the majority
main beneficiary of major investments.
of investment in digital will take place within the IT
function (Exhibit 5). The remaining 33% say that the
majority of investment in digital will go outside of IT (i.e.,

Exhibit 5

Two-thirds of wealth managers report the majority

of digital investments will take place within their IT
function

Will the majority of investments into digital transformation

occur within or outside of the IT function (i.e., within the
business)?
% of respondents that agree or strongly agree

Majority of digital investment

67%
within the IT function

Majority of digital investment

33%
outside the IT function

Source: EY analysis.

Accelerating the transformation of wealth management through digital technology 17

 As the majority of investment toward digital transformation? Only 37% of respondents state that
transformation focuses on the IT department, establishing their IT strategy has been defined and agreed, 50%
a sound strategy and approach toward technology- state that their IT strategy for digital is currently under
enabled innovation and change gains fundamental development, and 13% of wealth managers do not have
importance. But what progress are IT executives an IT strategy for digital transformation in place yet
making toward defining their IT strategy for digital (Exhibit 6).

Exhibit 6

Only 13% of wealth managers have not defined an IT

strategy for digital transformation, while 37% have
defined and agreed upon an IT strategy

Which of these statements best describes your IT strategy

for digital transformation?
% of respondents that agree or strongly agree

No IT strategy for
digital transformation 13%
defined

IT strategy for digital

transformation 50%
under development

IT strategy for digital

transformation 37%
defined and agreed

Source: EY analysis.

Evolving priorities next 24 to 36 months, the balance of business priorities

shifts noticeably: 77% of respondents view regulatory
Meeting the needs of the business requires IT executives
compliance (down by 3 percentage points), 70%
to reprioritize on a continual basis and strike a delicate
operational efficiency (up by 17 percentage points), 67%
balance between often conflicting requirements and
revenue growth (up by 10 percentage points) and 63%
priorities. IT executives shared with us how they are rising
risk reduction (up by 10 percentage points) as business
to the challenge.
priorities. Taking a longer-term perspective, IT executives
What strategic business priorities is IT expected to have in the wealth management sector clearly expect attention
the most impact on? Focusing on the next 12 months, on regulatory compliance to recede slightly, while
80% of respondents rate regulatory compliance, 57% operational efficiency and revenue growth climb up the
revenue growth and 53% operational efficiency and risk list of priorities.
reduction as those business priorities with the greatest
impact on IT (Exhibit 7). Looking further ahead to the

18 Accelerating the transformation of wealth management through digital technology

 Exhibit 7

Regulatory compliance is viewed as the business priority

with the most impact on IT, both in the short and
medium term

Within next 12 months

Within next 36 months

Which of these strategic business priorities is IT expected to

have the most impact on?
% of respondents that agree or strongly agree

80%
Regulatory compliance
77%

57%
Revenue growth and protection
67%

53%
Operational efficiency and improvement
70%

53%
Risk reduction (e.g., cybersecurity)
63%

Source: EY analysis.

Focusing on business priorities, what are the IT function’s of respondents as a priority, both in the short and long
key objectives over the coming years? Digital innovation term. At the same time, 57% consider risk reduction (e.g.,
is viewed as the top priority for IT executives, both in the through cybersecurity) a key priority in the short term,
short and long term (Exhibit 8), with 47% rating digital and more so (63%) in the long term. Likewise, time to
innovation as a priority for the next 12 months, and market is viewed as a priority with increasing importance:
43% as a priority in the next two to three years. Stability 50% see time to market it as a priority within the next
and cost reduction are viewed by 53% of respondents as year, with 67% seeing it as a priority in the next two to
priorities in the next 12 months, and by 47% within two three years.
to three years. Complexity reduction is viewed by 50%

Accelerating the transformation of wealth management through digital technology 19

 Exhibit 8

Most wealth managers expect both risk reduction and

time to market improvement to shift into focus over the
medium to long term
Within next 12 months

Within next 36 months

What are the key objectives for your IT function over the
coming years?
% of respondents that agree or strongly agree

53%
Stability
47%

50%
Complexity reduction
50%

57%
Risk reduction (e.g., cybersecurity)
63%

53%
Cost reduction
47%

50%
Time to market improvement
67%

47%
Innovation and digital capabilities
43%

Source: EY analysis.

20 Accelerating the transformation of wealth management through digital technology

Disruption is coming, and it is coming fast: the case supporting the process of prioritizing capability building
for mounting a digital response is compelling and and of determining which digital bets are likely to yield the
there is no time to lose. IT executives need to take the best returns for their organization.
initiative in defining the technology strategy for digital
transformation. They have a pivotal role to play in

Taking bold steps toward digital readiness: a guidebook for IT executives

The responsibilities of IT executives are wide- Disruptive technologies, new “as-a-service” sourcing
ranging: securing targeted benefits from technology models, competition from new players such as FinTech
implementation, ensuring that IT operations are secure players, new cyberthreats and increased commercial and
and screening trends for ways to unlock value with digital regulatory pressures are changing priorities rapidly and
technologies. reshaping the IT function of the future. Wealth managers
should prioritize:
These responsibilities provide IT executives with a unique
vantage point, not only to support but also to drive • Building a high-performance and agile IT organization
and enable the transformation toward digital. To make
• Optimizing IT outsourcing relationships
meaningful progress toward the digital target state, IT
executives will have to renew their focus and double up Forging an IT landscape ready for digital
their efforts in three areas: aligning IT spend with the transformation
most important digital priorities, retooling the IT function Wealth managers can determine the digital readiness of
for the digital age and forging an IT landscape ready for their IT landscapes in a number of ways, by taking both
digital transformation. Taking these steps will allow IT evolutionary and revolutionary approaches. In order to
executives to navigate the new digital reality and achieve develop a fast, flexible and adjustable architecture, the
competitive advantage for their wealth management following steps become necessary:
business.
• Modernizing core IT platforms
Aligning IT spend with the most important digital
priorities • Reducing complexity and rationalizing the IT
landscape
Technology can improve business performance by driving
revenue and reducing overall costs. Understanding Wealth managers should empower their IT executives
where IT spend adds the most value provides a prism on and other technology leaders to play a more meaningful
investment priorities and a focus for benefit realization. role in shaping the technology strategy toward digital.
Wealth managers will benefit from: This requires IT executives to shift away from a supplier
mindset focused on cost-effective utility and toward IT
• Increasing transparency on where IT spend is going leadership that is integrated into discussions of overall
• Making IT spend more effective digital strategy. This approach is sure to contribute
positively to building and innovating the business.
Retooling the IT function for the digital age
The IT function needed by wealth managers tomorrow is a
very different proposition from that of today.

Accelerating the transformation of wealth management through digital technology 21

 Aligning IT spend with the most
C
important digital priorities

In times of intense competition and margin contraction, Only by making IT costs transparent to the business
wealth managers are trying to stretch capital and and increasing the effectiveness of IT spend can IT
operating budgets, and do more with less. Despite the executives and other technology leaders shift dialogue
increasing importance of technology as wealth managers onto a more productive plane and obtain a deeper, shared
digitize their business and operating models, annual understanding of how IT spend adds value, the top and
budgets for IT continue to be subject to intense scrutiny. bottom line.

Understanding where IT spend adds the most value

EY regularly benchmarks the IT capabilities of wealth (Exhibit 9). IT spend of wealth managers has been
managers to determine IT performance in relation growing, both in absolute and relative terms. In 2013,
to business results. Our benchmark captures relative IT spend was 9.8% of operating expenses and 7.7% of
business performance against several technology operating income. By 2016, IT spend had increased by a
parameters, such as IT cost, architecture and staffing whole percentage point in terms of operating expenses
levels, as well as sourcing models. We calculate key IT and operating income, to 10.8% and 8.7% respectively.
cost ratios in order to pinpoint where individual wealth Measured in relation to assets under management (AuM),
managers are positioned in their IT investment cycles. IT spend averaged 10 basis points of AuM in 2016,
The key ratios calculated are IT cost as a percentage of up from 8 basis points in 2013. Looking at IT spend in
operating income (IT cost-income ratio) and IT cost as absolute terms, a similar picture emerges. Compared with
a percentage of operating expenses (IT share of cost). 2013 (indexed at 100%), IT spend grew by 67% between
Additional relevant metrics are IT outsourcing ratio, IT 2013 and 2016. Over the same period, operating
change and discretionary ratio and unit IT staff costs. expenses grew by a mere 24%, and operating income
by 16%, resulting in an overall deterioration of the cost-
According to our IT benchmarking of wealth managers
income ratio, from 78.4% in 2013 to 84.2% in 2016.
globally, IT spend averaged 10.4% of operating expenses
and 8.2% of operating income between 2013 and 2016

22 Accelerating the transformation of wealth management through digital technology

Exhibit 9

Globally, IT spend increased between 2013

and 2016, both in relation to IT share of cost and
IT cost-income ratio
IT share of cost¹ IT cost-income ratio²

Americas Asia-Pacific

8.2 8.9
7.7 7.9
6.8 13.3
6.3 12.2 11.6
6.1 6.0 5.9 6.1 11.1
10.0
8.0 7.3 7.2
7.1 6.5

2013 2014 2015 2016 Avg 2013 2014 2015 2016 Avg

Western Europe

8.5 8.6 8.9 8.5

8.0

10.5 10.4 10.7 10.4

10.0

2013 2014 2015 2016 Avg

Global average

8.3 8.7
7.7 8.2 8.2

10.3 10.4 10.8 10.4

9.8
Avg

2013 2014 2015 2016 Avg

1
IT share of cost divided by operating expenses.
2
IT cost divided by operating income.
Source: EY analysis.

Accelerating the transformation of wealth management through digital technology 23

 Regional variation IT spend distribution
The development of IT budgets varies by region, mainly Total IT spend comprises all spend types, across the
reflecting differences in growth cycles and unit costs. front, middle and back office. Our analysis focuses on
IT spend growth has been strongest in Asia-Pacific. In the following six areas: client relationship management,
absolute terms, IT spend grew there by 88% between product and service management, trading services,
2013 and 2016. In the same period, operating expenses operations and processing, support infrastructure,
and operating income have grown more slowly, by 34% and risk, finance and compliance. Client relationship
and 41% respectively. Relative to operating expenses, IT management covers sales, distribution and the
spend in Asia-Pacific grew to 13.3% in 2016, from 10.0% management of prospects and clients. Product and
in 2013. service management covers advisory, product
management and profiling. Trading services includes
In contrast, growth of IT spend in the Americas has been
trade reporting and order management. Operations
slower, rising 19% between 2013 and 2016. In the same
and processing covers clearing and settlement. Support
period, operating expenses grew by 44% and operating
infrastructure includes HR, legal and other support
income by 25%. IT share of cost and IT cost-income ratio
services. Risk, finance and compliance covers risk
have been declining: IT share of cost was 6.5% in 2016,
management, accounting, finance and compliance. IT
down from 8.0% in 2013, and IT cost-income ratio was
spend in client relationship management and product
5.9% in 2016, down from 6.3% in 2013.
and service management are viewed as front-office IT
In the period between 2013 and 2016, wealth managers spend, and all other segments as middle- and back-office
in Western Europe saw IT spend climb by 67%, operating IT spend.
expenses by 19% and operating income by 10%. IT share
On average, 34% of the annual IT budget is spent on
of cost was 10.7% in 2016, up from 10% in 2013, and the
the front office, focusing on customer relationship
IT cost-income ratio was 8.9% in 2016, up from 8.0% in
management and products and service management
2013.
(Exhibit 10). The remainder, 67% of IT spend, goes to
the middle and back office, including trading, operations,
support infrastructure and risk, finance and compliance.

24 Accelerating the transformation of wealth management through digital technology

Exhibit 10

IT spend on the front office has been growing as a

percentage of total IT spend
Breakdown of IT spend
IT spend categories as a percentage of total IT spend
(average between 2013 and 2016)

Front office Middle and back office

Customer Product Risk and

relationship mgmt. mgmt. Trading Operations compliance Infrastructure

19 15 11 24 14 18

Development of IT spend categories

x Percentage point difference
IT spend categories as % of total IT spend
(time series)

Middle and back office Front office

-11
71
67 67
12 63
Trading 60
12 11
10
10

Operations 25 +11
+11
25 24 40
23
22 36
34 34
30
Risk and 24
14 Customer
compliance 14 19 21 19
14 14
14 relationship 16
mgmt.
Infrastructure 20
16 16 18 Product 14 15 15 17 15
14
mgmt.

2013 2014 2015 2016 Average 2013 2014 2015 2016 Average

Numbers may not add up due to rounding.

Source: EY analysis.

Accelerating the transformation of wealth management through digital technology 25

 A closer look at those areas where wealth managers are of business growth achieve USD 61,000 more operating
spending the most reveals that 24% of total annual spend income while spending USD 24 less on IT (both figures
goes into operations (clearing and settlement) and 19% normalized by full-time equivalents). In other words, the
into customer relationship management (mainly sales best performers get USD 8.9 more operating income
and distribution). Other key areas of IT spend are support per USD 1 of IT spend than the poorest performers.
infrastructure (mainly HR, legal and other support
Players that excel in either the business efficiency or the
services) with 18%, and product and service management
business growth dimension (Exhibit 11) have a number of
with 15% of total annual IT spend. The percentage of IT
traits in common:
spend in the front office is growing: in 2013, IT spend on
front-office operations made up 30% of total spend. And • Best-practice wealth managers spend more on front-
in 2016, it went up to 40%. office initiatives, such as customer relationship or
product and sales management, than the average
Key drivers of success
wealth manager. Of total IT spend, best-practice wealth
Technology can improve business performance by driving managers channel 39% into the front office, compared
revenues (e.g., using big data for cross-selling in digital with 24% in the case of low-performing wealth
channels) and reducing overall costs (e.g., by automating managers.
end-to-end processes). Our benchmark ranks the IT
• Best-practice wealth managers report higher
performance of individual wealth managers by comparing
outsourcing levels and higher value realized from
their IT spend levels and relative business performance
outsourcing, measured by metrics such as business
against the average values for their peer group. We
efficiency and contribution to business growth. Leading
assess efficiency and effectiveness of IT spend in two
wealth managers report that 39% of total IT spend
dimensions:
relates to outsourced services; low performers only
• Contribution to business efficiency. Leading wealth 29%.
managers in this category excel in driving efficiency and
• Best-practice wealth managers report that 54% of
automation. In doing so, they are able to sustainably
total IT spend, on average, is discretionary, below the
lower non-IT operating expenses. Those IT functions
peer-group average of 60%. Despite lower outlays
that achieve high levels of business efficiency are able
on discretionary IT spend, top-performing wealth
to spend 8 percentage points less on IT (measured
managers do a better job of extracting business value
as IT share of cost) while achieving 13 percentage
from their discretionary IT spend.
points lower non-IT operating expenses (normalized
by operating income) compared with the poorest
performers.
• Contribution to business growth. Leading wealth
managers in this category excel in driving revenue
growth. Those IT functions that contribute to high levels

26 Accelerating the transformation of wealth management through digital technology

Exhibit 11

Significant differences in value realized from

IT investments between top and bottom performers

Business efficiency contribution Revenue growth contribution

Business expense as % of operating income vs. Operating income per internal FTE vs.
IT share of cost IT spend per internal FTE

Business expense as % of operating income Operating income per internal FTE (USD ‘000)

600

90
500

80
400

70
300

60
200

50
100
0 5 10 15 20 0 20 40 60 80
IT share of cost, % IT spend per internal FTE (USD ‘000)

Best practice Top performers Bottom performers

Bubble size represents AuM Trend

1
Full-time equivalent.
Source: EY analysis.

Accelerating the transformation of wealth management through digital technology 27

 Increasing transparency of where IT spend is going

Many wealth managers see IT as a black box that Creating a bill of IT

generates significant costs. Few business managers know
A bill of IT provides the business with a detailed account
exactly what they are paying for and why their outlays
of the consumption of technology resources and
keep rising. Increasing transparency on IT costs can
the resulting charges. It includes a list of IT services
fundamentally change the way the business perceives IT
consumed by the business along with details about
costs and consumes IT services. In turn, this can improve
service unit rates, units of measurement, volume and
the partnership between IT and the business in their joint
cost. The bill of IT is typically broken down into two
efforts to keep the IT cost base in check.
sections: run and change. This structure provides greater
Transparency on IT costs can provide the business with transparency on the alignment of technology costs and
two powerful tools: firstly, a catalog of IT services and demonstrates a direct correlation between IT resource
products that specifies features, prices and service levels, volumes and costs.
and secondly, a “bill of IT” showing the infrastructure
With clarity of unitized IT costs and actual levels of
assets consumed by these products and the cost of
consumption provided in the bill of IT, the business can
their consumption. Combined, these two tools allow IT
begin seeking ways to control and reduce consumption
to charge the business only for the type and volume of
and right-size demand. Managers are able to understand
IT services consumed, thus enabling true consumption-
what they are paying for and where they can cut back.
based chargeback of IT costs.
Establishing this level of transparency on IT costs is not
Building a catalog of IT services straightforward. A large IT organization might support
thousands of applications, dozens of physical sites and
The first step toward IT cost transparency is to develop a
tens of thousands of end users. Full clarity on unitized
catalog of IT services. This catalog encompasses both run
costs and levels of consumption, however, is required to
and change services, covering application development,
create a comprehensive bill of IT.
application hosting, application maintenance and end-
user computing. The service catalog describes services Establishing this transparency on unitized IT costs is
that are distinct and can be ordered by the business. IT one area in which the wealth managers struggle the
services are defined in user-friendly terms, through the most according to our research: 36% told us that their IT
lens of the end consumer, clearly articulating the business services were not charged to the business based on unit
benefit and also providing information on quality metrics. costs.
The number of services in the catalog can be limited by
Another benefit of cost transparency is the improvement
bundling related service components into a combined
of dialogue between IT and the business as users begin
service offering.
to understand IT costs and their drivers. Moreover, apart
To manage the IT service portfolio based on cost and from laying the groundwork for identifying cost avoidance
value, each IT service is assigned to a service owner. and reduction opportunities, cost transparency is of
They are accountable for ensuring cost, quality and fundamental importance for successful outsourcing and
performance of the end-to-end service, not just individual for the evaluation and integration of IT in mergers and
service components. A forum to engage with business acquisitions.
units to understand their needs, obtain feedback on
services and rationalize services can further drive
adoption of the IT service catalog.

28 Accelerating the transformation of wealth management through digital technology

Making IT spend more effective

The ability to optimize IT spend and free up funds from investments. To improve performance, this group of
“keep-the-lights-on” maintenance for burgeoning digital efficient IT executors should sharpen the focus of
initiatives is a key success factor for IT executives who current IT spending on improving and innovating front-
wish to ready their organizations for the transformation office tools and enablers, e.g., mobile banking or client
toward digital. Freeing up resources for digital initiatives – analytics.
to address concerns around security, regulation,
• High IT spenders. Seventeen percent of wealth
organizational improvement, system maintenance and
managers are high IT spenders. These players exhibit
modernization but also to drive IT-enabled innovation –
above-average IT spending but below-average cost-
can be achieved in a number of ways, including by making
income ratios. For this group, IT investments do not
IT operations more efficient through automation and self-
result in proportional business returns. It is likely that
service or establishing self-funding mechanisms for digital
these players spend too much on running their daily
innovation.
operations and too little on innovation that would set
To identify areas for improvement, we look at the them apart from their competition. High IT spenders
relationship between the overall cost-income ratio and the should reduce spending, invest selectively to improve
IT cost-income ratio (measured as total IT cost divided by business performance and achieve better alignment
operating income). Benchmarking wealth managers along with business objectives. This can be done by evaluating
these dimensions highlights four performance categories IT projects with regard to benefits and cutting projects
(Exhibit 12): that are not strategic.
• Effective business enablers. Thirty-nine percent of • Heavy IT transformers. Twenty-two percent of wealth
wealth managers are effective business enablers. This managers are heavy transformers. These players
group of wealth managers maintain low levels of IT spend heavily on their IT and see proportional business
spending but successfully put IT investments to good returns on their investments. The majority of players
business use. To stay on top of market developments, in this group have undergone high-impact IT-enabled
players in this group should look at opportunities transformation programs with above-average IT
to selectively rebalance IT investments. Building investments for their peer group. Over time, heavy IT
capabilities in strategic areas such as digital or big data transformers should cut back spending without losing
will allow IT to exploit innovations quickly. efficiency and limiting innovations. These players
should improve their governance and performance-
• Efficient IT executors. Twenty-two percent of wealth
management techniques to align IT spending more
managers are efficient IT executors. Players in this
strongly with priorities once specific phases of
category do not invest heavily in IT, but neither do
transformation are complete.
they see high levels of business return on their IT

Accelerating the transformation of wealth management through digital technology 29

 Exhibit 12

Effective IT executers achieve a low cost-income ratio

and, at the same time, a low IT cost-income ratio

Effective business enablers Heavy IT transformers

• Rebalance IT investments • Align IT spending with priorities
• Build capabilities to exploit emerging • Redirect spending after
innovations quickly transformation

A B

Cost-ratio (%)

100

90

80

70

60

0 5 10 20
IT cost-income ratio (%)

C D

Efficient IT executers High IT spenders

• Increase front-end investments to build • Cut nonstrategic IT projects
out new sources of income • Ensure alignment with business
• Redirect back-end spending to boost • Prioritize development and
cost performance fast delivery

Best practice
Bubble size represents AuM

Source: EY analysis.

30 Accelerating the transformation of wealth management through digital technology

High-performance wealth managers achieve better • Right-sizing demand. Demand for IT services can be
performance by spending their technology dollars more controlled on both the run and the change side. On the
efficiently and with a clearer focus than their peers. run side, the objective is to make the cost of IT services
These benchmarking results reflect the potential currently on a unitized basis transparent to business consumers.
available to wealth managers in optimizing their IT On the change side, the goal is to improve governance
function. With the acceleration of digital transformation, around project selection and funding. Reducing the
the value up for grabs is likely to increase in the future, as number of noncritical projects entering the pipeline,
will the opportunity cost of falling behind digital leaders. wealth managers should request each incoming
change initiative to articulate the expected return on
Three measures can help wealth managers increase the
investment as part of the approval process. This ensures
value delivered by their IT investments:
that resource consumption and returns are made
• Improving strategic alignment. Wealth managers that transparent and that management has an overview of
achieve superior returns for lower IT expenditures are IT spending.
much better at aligning IT spending with the strategic
• Forcefully managing complexity. Leading wealth
priorities of the business. These wealth managers
managers exercise rigorous discipline in cutting
also form their IT strategies in close cooperation and
complexity across multiple layers, by applying strong
alignment with the business by using formal governance
governance frameworks, architecture review and design
processes and engaging the business to focus on value
authority boards and streamlining application and
creation levers that are influenced by IT. Our survey
infrastructure environments. By tightening discipline
research indicates that wealth managers are doing well
and governance around key IT complexity drivers,
in this area. Overall, 36% of respondents agree that the
wealth managers can reduce operational costs and
alignment between IT project investment and overall
improve the quality and time to market of solutions.
business benefit in their organization is well defined
Concrete steps for reducing complexity are outlined on
and clear. However, only 32% of respondents agree
page 50 under“Building a digital-ready IT architecture”.
that the impact of IT investments on run costs (and
thus on total cost of ownership) is fully understood and
factored into their run budgets, with 25% disagreeing
or strongly disagreeing that this is the case within their
organization.

Accelerating the transformation of wealth management through digital technology 31

 Retooling the IT function for
D
the digital age

The IT function needed by wealth managers tomorrow organization must find its own fit-for-purpose IT operating
is a very different proposition from that of today. model that allows it to manage the slow evolution
Disruptive technologies, new “as-a-service” sourcing of core platforms while at the same time delivering
models, competition from new players such as FinTech completely new digital capabilities. Increasingly, the
players, new cyber threats and increased commercial and ability to incorporate multiple approaches within a
regulatory pressures are changing priorities rapidly and single IT operating model is turning into a competitive
reshaping the IT function of the future. advantage. In our quest to better understand the nature
and mechanics of high-performing IT functions, we
What is evident from our work with clients is that best-
drilled down into two critical areas: the nature of the IT
practice players are able to create more value from IT
organization itself and its approach toward outsourcing.
through an IT operating model that is efficient, scalable
and flexible. What is also clear is that the “one-size-
fits-all” operating model for IT no longer exists. Each

Building a high-performance IT function

Three components are essential for building a high- respondents say that their IT function is geared toward
performing IT function: its organizational structure, outsourcing, with IT teams clustered around the interface
its approach toward talent management and its IT to IT outsourcing providers. Another 20% report that their
capabilities and processes. Only by orchestrating IT function is organized along technology towers and
performance across all three building blocks can core technologies. The remaining 17% state that their IT
wealth managers expect to reap the benefits of a high- function is organized around agile mechanisms, with IT
performance IT function. teams applying delivery methods with short development
cycles and continuous software delivery.
A future-proof IT organization
Several correlations emerge when different IT
We asked wealth managers what organizational
organizational models are contrasted against key IT
structures they have in place for their IT function
metrics:
(Exhibit 13). The most prevalent answer (37%) is that
their IT organizational model is designed along the • Wealth managers with a self-reported agile
software development life cycle, with IT teams grouped organizational model are ahead of their peers across a
by functional responsibilities for designing, constructing number of metrics, including change ratio (50% versus
and operating business systems. A total of 27% of peer-group average of 42%), IT share of cost (7.7%

32 Accelerating the transformation of wealth management through digital technology

 versus average of 10.2%), IT cost-income ratio (5.7% Our research also reveals an above-average prevalence of
versus peer average of 8.0%). agile IT operating models within the group of best-practice
IT functions (measured by the relationship between
• Wealth managers with a self-reported outsourcing-
overall cost-income ratio to IT cost-income ratio). A total
oriented model have the highest IT outsourcing ratio,
of 44% of best-practice IT functions in our sample have
(62% versus a peer average of 35%).
agile IT organizational models, by far exceeding the share
• Those wealth managers with an operating model of agile models in the full population (17%).
oriented toward the software development life cycle
are ahead on driving business efficiency through
IT-enabled automation, as evidenced by a non-IT
operating expenses ratio of 63% versus a peer-group
average of 72%.

Accelerating the transformation of wealth management through digital technology 33

 Exhibit 13

Wealth managers with a self-reported agile organizational

model are ahead of their peers based on IT cost-income ratio
IT organizational model

Agile Tech-focused Software life Outsourcing-

IT organization IT organization cycle-oriented oriented
IT organization IT organization
• IT teams apply agile • Teams are grouped • Teams are grouped • Teams work
methods with short around core around functional on brokering,
development cycles technologies and responsibilities orchestrating
structured around and integrating
towers or silos change

Distribution
(in % of total
participants)
17 20 37 27

IT cost-income
ratio 9.4
(IT cost as % of 8.4 8.3
operating income)
5.7

Operating
income per 387
346 360
banking FTEs 328
(USD ‘000)

Numbers may not add up due to rounding.

Source: EY analysis.

34 Accelerating the transformation of wealth management through digital technology

At the heart of the agile organization is rapid decision organization’s most complex technical problems and engage
making. Small cross-functional teams work side by senior business leaders is another, and equally important,
side, checking in daily for quick progress updates and enabler of high performance.
problem-solving. Whereas the shift away from “waterfall”
Our research into IT staffing and compensation levels
methodologies to agile techniques such as “scrums” is
exposes two dominant trends. Firstly, whereas IT staffing
evident across the entire industry, few wealth managers are
levels relative to total organizational size are steadily
putting agile methods to good business use. In our sample,
increasing, the gap in compensation between IT staff and
27% of wealth managers state that they never apply any
non-IT staff is widening. Secondly, IT executives believe that
agile methods. Only 23% state that agile is used for most
they have the right talent in place to cope with upcoming
projects, while 50% state that agile approaches are used
challenges, for the most part.
exclusively for fast-moving applications. These findings
suggest that more could be done to capture the full potential Right talent to cope with upcoming challenges
of agile in accelerating time to market, among other benefits. According to our research, overall demand for IT talent is
There is more work to be done in pivoting the delivery growing. Measured in full-time equivalents (FTE) and relative
models of wealth managers toward increased use of agile. to organizational size, total staffing levels in the IT function
Winning the game for IT talent have increased from 8.4% in 2013 to 10.2% in 2016. The IT
staffing mix is also undergoing change, with IT departments
The organization’s structural model is clearly an important
increasingly relying on external IT staff (contingent
element of a high-performance IT function. A motivated
workforce) to meet their staffing requirements (Exhibit 14).
and innovative IT workforce that is able to solve the

Accelerating the transformation of wealth management through digital technology 35

 Exhibit 14

Total IT FTEs have increased between 2013 and 2016

by 6.7%, mainly fueled by external FTE staff

Development of IT internal staff and IT external staff

IT external staff
IT internal staff
% of total staff of wealth manager

+6.7%
0
9.5 9.6 10.2
8.4
2.8 2.5 3.0
1.7

6.7 6.7 7.1 7.2

2013 2014 2015 2016

Internal FTE cost development

Unit cost per IT staff (internal - FTE)

Unit cost per wealth management staff (FTE)

Unit cost per staff (USD ‘000)

+64% +64% +63% +61%

173 166 167 171

111 107 106 104

2013 2014 2015 2016

Source: EY analysis.

36 Accelerating the transformation of wealth management through digital technology

While demand for IT staff grows steadily, the gap in How can the IT function retain and attract more talent?
compensation between IT and non-IT staff continues to According to our research, 83% of wealth managers
widen, as is evident from a comparison between total believe that setting interesting challenges (e.g., working
annual unit cost for IT staff as a proxy for compensation with state-of-the-art technology) is the most effective
and total annual cost for the entire workforce in the way to attract more talent (Exhibit 15). Exactly half of
organization (Exhibit 14). Given this development, what respondents believe that recognition of IT as a valued
are IT executives doing to attract and retain the talent function is key to attracting talent, while 37% set store
they need? by the way of working (e.g., daily interactions alongside
output delivered). Only 20% believe that monetary
Attracting and retaining talent for the IT function
incentives, and 17% that a structured career path, are
Consistent, high-performance delivery requires IT to effective ways of attracting talent to the IT function.
address its talent agenda mainly in two ways: attracting
more talent, including from within the organization, and
developing and retaining the internal talent pool.
Against the backdrop of growing demand for IT staff, IT
executives are cautiously optimistic that they have the
right talent. In our sample, 47% of respondents believe
that their teams are suitably staffed, both for business
and IT. Wealth managers in EMEA are particularly bullish
about their talent situation, with 59% of wealth managers
in the region optimistic about their staffing.

Accelerating the transformation of wealth management through digital technology 37

 Exhibit 15

As an effective way to attract more talent to their IT

function, interesting challenges, such as working with
innovative technologies, are key to wealth managers

What would be the most effective way to attract more

talent to your IT function?
% of respondents that agree or strongly agree to statement

Interesting challenges
(e.g., working with innovative 83%
technology)

Recognition as a valued function 50%

Way of working
37%
(e.g., interaction work model)

Monetary incentive 20%

Structured career path 17%

Source: EY analysis.

Retaining internal talent and building on the existing include training programs and job rotation, as well
talent pool, in particular high performers, hinges on as senior and external exposure. Adjustments in
career development and learning opportunities in compensation and incentives may be required to align
combination with reward and compensation systems. with market levels.
Effective measures to foster development and learning

38 Accelerating the transformation of wealth management through digital technology

Building IT capabilities for digital • Portfolio, program and project delivery (sub-capabilities:
benefits assessment and program and project
The increasing pace of digital innovation is putting a strain
management.) is rated by 80% of respondents as highly
on existing IT capabilities. Building the right IT capabilities
important.
required for digital transformation is one of the key
challenges IT executives face today. Doing so properly • High-performance organization (sub-capabilities: IT
can easily mean the difference between a thriving wealth leadership, people asset management and organization
management business that is propelled by an agile design.) is rated by 67% of respondents as highly
IT function or an IT function that fails to provide any important.
meaningful impetus for the business.
• Cost management (sub-capabilities: total cost of
To evaluate the relative importance attached to specific ownership and accounting.) is rated by 61% of
IT capabilities, we leverage the IT capability maturity respondents as highly important.
framework (IT-CMF), an IT management framework
• Agile IT architecture (sub-capabilities: enterprise
designed to help organizations optimize their IT
architecture management and business process
capabilities and maximize IT’s delivery of business value.
management.) is rated by 54% of respondents as highly
The IT capabilities we evaluate fall into nine groups that
important.
address the different ways that technology provides value
to the business. Lower importance was attached to the following IT
capabilities:
• IT-enabled business innovation: Executing product,
service, process, and IT innovations • Sourcing management (sub-capabilities: capacity
forecasting, supplier management and sourcing.) is
• Agile IT architecture: Achieving system flexibility
rated by 49% of respondents as highly important.
and integration capability to enable efficient business
change • Service delivery (sub-capabilities: technical
infrastructure management, solutions delivery and
• Business and IT strategic alignment: Integrating
sourcing.) is rated by 49% of respondents as important.
business and IT strategy and road maps
• IT-enabled innovation (sub-capabilities: innovation
• Portfolio, program and project delivery: Well-governed
management, knowledge management and R&D, etc.) is
portfolio prioritization and program delivery processes
rated by 41% of respondents as important.
• High-performance organization: Effective and efficient
• Business and IT operational integration (sub-capabilities:
organization to deliver IT services
service analytics, relationship asset management and
• Cost management: Transparent, relevant and business- risk management.) is rated by 38% of respondents as
oriented forecasting and allocation important.
• Sourcing management: Strategic sourcing capability Organizations need to forge an IT function that is fit for
that enables access to scale, efficiency and market purpose in a digital age. But it is not feasible, nor is it
innovation desirable, to attempt to assemble internally the full gamut
of structures, skills and capabilities needed. Deciding
• Business and IT operational integration: Strong
what to keep or build in-house and what to outsource is a
business and IT collaboration
critical step in the digital transformation journey.
• Service delivery: Standard, simple services with cost
and quality differentiated on the basis of business needs
IT leaders rate the following five IT capabilities as most
important in their future plans (Exhibit 16):
• Business and IT strategic alignment (sub-capabilities:
portfolio planning, strategic planning and business
planning.) is rated by 84% of respondents as highly
important.

Accelerating the transformation of wealth management through digital technology 39

 Exhibit 16

The most important capability for wealth managers is

business and IT strategic alignment
IT capabilities Importance1

IT capability IT sub-capabilities

1 Business and IT strategic • Portfolio planning

alignment • Strategic planning 84%
• Business planning

2 Portfolio, program and • Portfolio planning

project delivery • Program and project mgmt. 80%
• Benefits assessment

3 High-performance • People asset mgmt.

organization • IT leadership 67%
• Organization design

4 Cost management • Total cost of ownership

• People asset mgmt. 61%
• Accounting

5 Agile IT architecture • People asset mgmt.

• Enterprise architecture mgmt. 54%
• Business process mgmt.

6 Sourcing management • Capacity forecasting

• Supplier mgmt. 49%
• Sourcing

7 Service delivery • Technical infrastructure mgmt.

• Solutions delivery 49%
• Sourcing

8 IT-enabled business • Innovation mgmt.

innovation • Knowledge mgmt. 41%
• R&D

9 Business and IT • Service analytics

operational integration • Relationship asset mgmt. 38%
• Risk mgmt.

1
Self-assessed importance (aggregate average across all sub-capabilities).
Source: EY analysis.

40 Accelerating the transformation of wealth management through digital technology

Making IT outsourcing deliver value

Outsourcing to technology vendors is a critical element from external providers. In markets such as Switzerland,
of the IT operating model. Technology vendors provide where the provider landscape is mature, smaller wealth
a range of benefits, from greater economies of scale managers frequently contract out the majority of their
and access to a lower-cost skill base through to process back office to external providers, often only maintaining
efficiencies derived from experience. customer relationship and risk management in-house.
Almost all wealth managers in our database practice Given the diversity of how IT outsourcing is practiced
some form of IT outsourcing. The average IT outsourcing among wealth managers globally, we asked ourselves
ratio (measured as outsourced IT spend as a percentage how successful wealth managers were in outsourcing
of total IT spend) has remained roughly constant over the parts of their IT function. To answer this question, we
years, averaging 35% across the entire population within split the population of wealth managers into two groups
our database. depending on their relative positioning to the median of
the IT outsourcing ratio. A comparison of those with an IT
The diversity and maturity of external service providers
outsourcing ratio below the median against those above
has evolved over the years. Several outsourcing models
the median surfaced the following findings (Exhibit 17):
are available to wealth managers today, ranging from
pure IT outsourcing (ITO) to business process outsourcing • T
 he average IT outsourcing ratio within our population
(BPO). In a self-assessment of their dominant IT sourcing was 35% and the average IT share of cost was just above
model, 41% of wealth managers report that they 10%.
outsource only IT services, 11% that they outsource entire
• T
 he IT share of cost (IT spend as a percentage of
business processes within the back office and 48% that
operating expenses) and IT cost-income ratio (IT spend
they operate the majority of their IT in-house. The IT
as a percentage of operating income) was slightly higher
outsourcing ratios vary accordingly between these three
for those with a below-median IT outsourcing ratio.
dominant sourcing models. The average IT outsourcing
ratio is 49% for those who say they outsource mainly • A
 s indicated by the value gap, excessive outsourcing
under an ITO model and 68% for those that outsource achieves the opposite result desired. Costs start
mainly under a BPO model. Respondents that report increasing again for an IT outsourcing ratio just above
largely operating their IT in-house show a much lower IT 50%.
outsourcing ratio, averaging 16% across the population. The benefits realized from IT outsourcing often fall short
Wealth managers can outsource different layers of the of expectations. In our experience, the extent to which IT
technology stack, covering infrastructure, applications outsourcing arrangements can deliver maximum value
or a combination of the two. The outsourcing ratios vary hinges on three elements: a capable and committed
depending on the depth of the technology stack that vendor, an optimized relationship between contracting
is outsourced. The IT outsourcing ratio was highest for parties, and a strong retained IT organization that is able
those that outsource both infrastructure and applications, to sustain the benefits. The capabilities of the retained IT
averaging 71% throughout the period under review. organization in particular are essential for delivering the
For those outsourcing only applications, the average IT intended benefits from IT outsourcing. Only a retained
outsourcing ratio was 42%. At 29%, the IT ratio was lowest organization equipped with the correct skills will be able
for those outsourcing only infrastructure. to extract the full value from IT outsourcing.
A comparison of practices between smaller and larger
wealth managers reveals a number of interesting
patterns. Smaller-sized wealth managers outsource
on average 47% of IT operations, a much higher value
compared with larger wealth managers, who report that
they outsource between 32% and 40% of their operations.
Smaller players also frequently leverage the BPO model,
contracting large components of their back-office services

Accelerating the transformation of wealth management through digital technology 41

 Exhibit 17

Wealth managers with a very high outsourcing

ratio do not realize benefits

IT outsourcing ratio vs. IT share of cost

Actual trend line
Idealized trend line
IT share of cost (%)

Ø 35
20

10

Value gap

0 20 40 60 80
IT outsourcing ratio (%)

Source: EY analysis.

42 Accelerating the transformation of wealth management through digital technology

 Forging an IT landscape ready
E
for digital transformation

At the heart of every wealth manager’s IT infrastructure hardware solutions or shifting to newer technologies. One
lies its core IT platform. This is the technology workhorse wealth manager realized that its old and unwieldy core
that processes virtually everything that wealth managers platform was severely hurting its ability to control costs.
do, linking customers to products and services, across the Another found that its platform, made up of multiple
front, middle and back office. incompatible vendor packages and in-house applications,
was limiting its ability to aggregate client data across
Many wealth managers face critical modernization issues
business units.
around their core IT platform, whether that means
managing or moving away from aging software and

Modernizing core IT platforms for digital

The nature of core IT platforms differs among wealth Our analysis of the state of play around core IT platforms
managers in our sample. Only 10% of wealth managers evaluates a number of key metrics: percentage of overall
have developed their core IT platform using internal business functionality embedded in the core IT platform,
development resources (a self-developed IT platform). business efficiency enabled by the core IT platform, and
The core IT platforms of these players is typically older overall satisfaction with the software package and vendor.
than average, covers less functionality and achieves We also evaluate total cost of ownership, taking IT share
lower business efficiency. A large majority (90%) of of cost (IT spend as a percentage of operating expenses)
wealth managers in our sample have installed an external as a proxy for the annual cost of operating the platform.
software package, either off-the-shelf without major
modification (a packaged core IT platform) or with major
modification and customization (a best-of-breed core IT
platform).

Accelerating the transformation of wealth management through digital technology 43

 Choosing the right vendor package.
Selecting the right outside vendor is critical, considering • Satisfaction with package and vendor. In terms of
that the core IT platform touches almost all aspects of satisfaction with functionality (both from a business and
the enterprise architecture and remains in operation for IT perspective) and vendor support (for maintenance
at least ten years. To shed light on differences between and functional development), wealth managers on
vendors and their packages, we queried wealth managers average gave functionality a rating of 6.5 and their
on their installed software packages, their satisfaction vendor relationship a rating of 6.9, on a scale of 1 to 10
with the combination of vendor and platform, and the (with 1 as least and 10 as most satisfied).
percentage of total functionality embedded in the core
• Total cost of ownership. Given that the core IT
IT platform, a measure that provides an indication of the
platform frequently provides more than 80% of total
extent to which the platform’s capabilities are leveraged.
functionality, we use IT share of cost (measured as
Our analysis focuses on software vendors for which
annual IT spend as a percentage of operating expenses)
the sample size is sufficient to allow for meaningful
as a proxy for total cost of ownership of the core
inferences, including vendors such as Fiducia, Avaloq,
platform. Our analysis shows significant differences in
Advent, Temenos and ERI Bancaire. All findings are fully
costs depending on the IT platform provider. The delta
anonymized.
of costs between the different providers is as big as 6.3
The following findings stand out from our analysis percentage points.
(Exhibit 18):
Selecting the vendor package that offers an optimized
• Functional integration. For the combination of balance between functionality, flexibility and cost is not
software vendors and wealth managers in our straightforward. Given the importance of selecting the
sample, an average of 73.6% of overall functionality right vendor package, wealth managers will do well to
is embedded within the core IT platform. All other invest time and effort into a diligent vendor selection
functionality is provided by satellite applications. process that holistically considers the most important
Smaller wealth managers in particular rely heavily functional, technical and commercial aspects.
heavily rely on the core IT platform for much of their
business functionality, frequently leveraging 80%
and more of the functionality provided by the vendor

44 Accelerating the transformation of wealth management through digital technology

Exhibit 18

In total, 73.6% of overall functionality is provided

by the core IT platform

Functional coverage of core IT platform

(% of integration)

83.0 85.0
65.0 70.0 65.0
Ø 73.6

Provider 1 Provider 2 Provider 3 Provider 4 Provider 5

Satisfaction with platform and vendor Functionality

(level of satisfaction from 1 (low) to 10 (high))
Vendor
10.0

7.5 6.7 6.7 6.7 6.7 6.7

Ø 6.9
5.8 5.6
Ø 6.5
4.4

Provider 1 Provider 2 Provider 3 Provider 4 Provider 5

Total cost of ownership for the platform

(platform cost as % of total operating cost)

10.0 9.5 10.0

8.7

Ø 8.4

3.7

Provider 1 Provider 2 Provider 3 Provider 4 Provider 5

Source: EY analysis.

Accelerating the transformation of wealth management through digital technology 45

 Adopt or adapt by the vendor (a packaged core IT platform). The other
56% of wealth managers state that they have modified
Once the core IT platform has reached its end of life or
the vendor package to a high degree in order to meet
is no longer considered fit for purpose, wealth managers
functional requirements (best-of-breed core IT platform).
have little choice but to embark on the journey toward
To weigh up the pros and cons of the two approaches,
replatforming. Having selected a suitable vendor, wealth
our analysis drills down into functional coverage of the
managers are confronted with a fundamental decision:
platform and total cost of ownership. The findings are as
whether to adopt standard functionality provided by the
follows (Exhibit 19):
vendor or to adapt off-the-shelf functionality to achieve
higher levels of customization. On the one hand, a single- • Those wealth managers that operate a packaged core IT
minded quest to customize a chosen vendor package platform with limited customization report that it covers
to meet specific business requirements can result in 79.1% of total business functionality provided by the IT
unwieldy designs and inefficient processes. On the other function, compared with 60.4% of functional coverage
hand, excessive reliance on off-the-shelf functionality can for best-of-breed core IT platforms.
limit the value provided by the core IT platform. Finding
• In terms of annual total cost of ownership (TCO) of the
the right balance between standard processes that
core IT platform (measured as IT share of cost multiplied
promote efficiency and tailored offerings that meet the
by functional coverage), those wealth managers with
needs of the business can make the difference between
a self-reported best-of-breed core IT platform have a
success and failure.
lower annual TCO (5.9%) than those with a self-reported
Of those wealth managers in our sample that have packaged platform (8.3%).
installed an external vendor platform, 44% state that
they rely mostly on off-the-shelf functionality provided

46 Accelerating the transformation of wealth management through digital technology

Exhibit 19

Off-the-shelf platform implementations have significantly

higher functional coverage but also higher cost

Level of standardization of core IT platform

Fully Highly
standardized customized

Off-the-shelf Best-of-breed
core IT platform core IT platform
• Core IT platform purchased from software • External software package in place,
provider, with minimal customization with large degree of customization

Metrics
Functional coverage
of core IT platform 79.1

60.4
% of business
functionality
provided by core IT
platform

Total cost of
ownership of core
IT platform
8.3

5.9
Platform cost as % of
total operating cost

Source: EY analysis.

Accelerating the transformation of wealth management through digital technology 47

 Getting the timing of replacement right • Wealth managers operating IT platforms older than
10 years have a 2.7 percentage points higher IT cost-
Historically, wealth managers have favored an incremental
income ratio compared with wealth managers with IT
approach to modernizing their core IT platforms,
platforms less than 10 years old.
addressing the immediate pain points and subsequent
issues as they occur. However, the threat of digital • At the same time, IT platforms older than 10 years also
disruption is creating an urgent need for wealth managers generate higher IT share of cost. In our analysis, the
to modernize, and to do so with an eye on the big picture. difference between the age categories is 3.4 percentage
points.
Our analysis confirms that aging core IT platforms
have detrimental effects on total costs. Those wealth While a number of leading wealth managers have begun
managers with core IT platforms older than 10 years bear to transform their core IT platforms, many others are
significantly higher IT costs, relative both to operating merely taking tentative steps. Our analysis highlights
expenses and operating income (Exhibit 20): that a reticent approach does little more than delay the
inevitable. Meanwhile, organizations are burdened with
avoidable costs and a heightened risk exposure.

48 Accelerating the transformation of wealth management through digital technology

Exhibit 20

Wealth managers with core IT platforms older than 10

years report significantly higher IT costs

Age of core IT platform¹

Years

Less than 10 years More than 10 years

12.0
9.4

1.4x
8.6
6.7

IT cost-income ratio

IT share of cost

1
Age of the oldest installed application of the core IT system.
Source: EY analysis.

Accelerating the transformation of wealth management through digital technology 49

 Building a digital-ready IT architecture

All wealth managers have an IT architecture, but few of architecture standards or even enforced adherence
control it. This is especially evident in how applications to such standards through governance mechanisms and
are rolled out to support very specific business processes. processes.
More often than not, these applications meet the specific
Our analysis reveals the following (Exhibit 21):
needs of one division or business unit, with little regard
for impact on the broader IT architecture. Over time, the • Wealth managers with a self-assessed low level of IT
IT architecture grows, resulting in duplicated systems, architecture standardization have a significant higher
proliferating and inconsistent data, and makeshift IT share of cost (total annual IT spend divided by total
integration. annual operating cost) than those wealth managers
with a self-assessed high level of IT architecture
The resulting complex IT environment that is common
standardization. More specifically, wealth managers
for many large wealth managers can translate into
stating a high level of IT architecture standardization on
unnecessarily high IT costs and poor service levels. It
average reported an IT share of cost of 9.9% compared
can also make the IT organization less agile, impeding its
with 14% for wealth managers reporting a low level of IT
ability to help the business seize emerging opportunities.
architecture standardization.
An overly complex IT architecture and application
estate can significantly slow down and obstruct the • In comparing IT spend per AuM of wealth managers in
transformation toward digital enablement. Wealth our sample, a similar picture emerges. Wealth managers
managers can reduce their IT cost base and extract more with a low level of IT architecture standardization
value from their application portfolio in two ways: by report 15.5 basis points (bps) IT spend per AuM against
standardizing their IT architecture and by managing their 8.8 bps for those with a high level of IT architecture
application portfolio to optimize value. standardization.

Standardizing the IT architecture • In comparing the development over time, wealth

managers with a low level of IT architecture
Standardizing the IT architecture can provide a
standardization report 26% compound average growth
multitude of benefits, ranging from simplification to
of IT share of cost and 39% of IT spend per AuM
lower run cost. To gain a better understanding of the
between 2013 and 2016.
relationship between architecture standardization
and total cost of ownership for IT, we asked wealth • By contrast, wealth managers with a high level of IT
managers in our sample to assess their perceived level architecture standardization have a much lower IT
of architecture standardization based on three levels: spend growth: negative 4% IT share of cost and positive
none, medium and high. To qualify for medium-level 4% IT spend per AuM, measured as the compound
architecture standardization, respondents had to have average between 2013 and 2016.
defined a preferred application architecture or have
published architecture standards. For the high level of
standardization, participants had to have mandated use

50 Accelerating the transformation of wealth management through digital technology

Exhibit 21

Wealth managers with high levels of IT architecture

standardization realize significant benefits

Level of IT architecture standardization¹

Low level of High level of

architecture standardization architecture standardization
• Organization has not standardized IT • Organization has agreed on mandatory
architecture or has only defined and published application architecture standards or sets
a preferred application architecture standards through governance mechanism

IT share of cost
+26%
% of operating 18.6
expense 15.4 -4%
12.6
Ø 14.0 10.6
9.3 10.3 9.4 9.1
Ø 9.9

2013 2014 2015 2016 2013 2014 2015 2016

IT spend per AuM

Basis point of AuM +39% 23.3

17.7
+4%
Ø 15.5 12.4
8.6 8.4 8.4 9.2 9.3
Ø 8.8

2013 2014 2015 2016 2013 2014 2015 2016

X Compound annual growth rate

1
Based on self-assessment.
Source: EY analysis.

Accelerating the transformation of wealth management through digital technology 51

 As the results of our research demonstrate, • Publish IT architecture patterns. Standardization
standardization of the IT architecture offers significant hinges on reducing the number of patterns in the
benefit in cost avoidance and cost reduction. In driving IT architecture, thereby minimizing the variety of
toward higher and more cost-efficient levels of IT technologies, processes and skills necessary. Also,
architecture standardization, the following approaches assets need to be designed for reuse. Reusable IT
have proven successful: systems are critical for efficiency and are characterized
by modularity (independently functioning modules
• Create a target IT architecture blueprint. The first
of code) and interoperability (modules interacting
step is to define a high-level blueprint of the target IT
seamlessly thanks to standard protocols).
architecture. At a minimum, this consists of enterprise-
wide design principles as well as key metrics for the Done correctly, increasing the standardization of the
target IT architecture. The design principles define the IT architecture can achieve greater ability to leverage
qualitative standards and guidelines across the different economies of scale and not only avoid but actually reduce
architecture layers, e.g., data model, applications, overall IT costs.
integration platform and infrastructure. The key
Increasing value of the IT application portfolio
metrics define in quantitative terms “what good looks
like” for the target IT architecture, e.g., the number of Leading wealth managers in our sample maintain fewer
applications, interfaces, data repositories and technical applications (0.19 applications per FTE employee
infrastructure elements during “business as usual”, i.e., for best-practice wealth managers compared with an
once the simplification effort has run its course. average of 0.26 across the entire sample) and spend
less per application (USD 0.49 million annual IT spend
• Define a set of guiding principles. Defining a set of
per application for best-practice wealth managers
guiding principles can galvanize the IT function toward
compared with the average of USD 0.7 million). On
greater standardization. In working toward agreed
average, wealth managers in our sample decommissioned
and published guiding principles, a number of decision
5.2% of applications in the previous year and plan
points need to be agreed, e.g., favoring best-in-class
to decommission another 6.1% within the next 12
solutions instead of one-stop-shop, decoupling the
months. One wealth manager was able to decommission
agile front layers from the stable backend, supporting
nearly 40% of applications in the portfolio. Optimizing
in-house software development only for integration or
the portfolio of applications through consolidation,
building solutions with straight-through processing in
replacement and decommissioning can achieve greater
mind.
speed and adaptability to changing business requirements
and reduce total IT costs. In our experience, identifying

52 Accelerating the transformation of wealth management through digital technology

opportunities for optimization and value improvement and speed to market. Technical viability evaluates an
across the application portfolio relies on three core application’s strength from a technical perspective,
activities: based on criteria such as design and maintenance,
architecture interoperability, risk, support and
• Business capability alignment. A business taxonomy
operations. Total cost of ownership analysis focuses
organized at the highest level by the enterprise value
on identifying applications that are financially sound,
chain provides a framework for categorizing aspects
based on use, business coverage and mission-critical
of the business in a consistent manner. Alignment to
relevance.
business taxonomy is required to identify duplicate
applications, redundant functionality, priority areas for • Road map and governance. Once the full landscape of
optimization and business dependencies. value-improvement opportunities is identified through
application analysis and decision metrics, opportunities
• Application disposition. Application disposition focuses
are quantified in terms of their benefits and the costs
on classifying applications based on three predefined
associated with implementing them. Next, they are
categories: buy, sell or hold. This can provide insight
assessed in terms of priority for implementation and
on where to reduce complexity and simplify the
consolidated into a strategic rationalization road map
application stack, where to realize cost savings in the
that includes a repeatable methodology to realize cost
“sell” category versus investment in the “buy” or “hold”
savings associated with decommissioning identified
categories and how to align technology activities with
applications
business strategies and needs. The classification into
the three categories “buy”, “sell” or “hold” is informed While almost all IT leaders acknowledge the need for
by an analysis of functional and technical viability and optimizing application portfolios, only a few tackle
total cost of ownership. Functional viability evaluates the challenge head-on and drive for increased value
how well an application supports the business, relying realization. As our analysis highlights, making a conscious
on criteria such as product innovation and growth, effort to consolidate, replace and decommission
performance, functionality, quality, business risk applications most certainly pays off in the long run.

Accelerating the transformation of wealth management through digital technology 53

 Contacts

Alex Birkin Dr. Robert Rümmler

Partner Senior Manager
EY Global Advisory Leader EY Switzerland Leader
Wealth and Asset Management Technology-enabled Transformation
in Wealth and Asset Management
+44 79 7689 8980
[email protected] +41 79 791 74 41
[email protected]

Dean Brown Scott Becchi

Partner Partner
EY EMEIA Leader EY Americas Leader
Technology-enabled Transformation Technology-enabled Transformation
in Wealth and Asset Management in Wealth and Asset Management

+44 78 8423 4721 +1 703 930 3344

[email protected] [email protected]

Jason McLean
Partner
EY Asia-Pacific Leader
Technology-enabled Transformation
in Wealth and Asset Management

+61 40 913 0074

[email protected]

54 Accelerating the transformation of wealth management through digital technology

Acknowledgments

The authors wish to thank the local coordination team who greatly contributed to the
research and survey work: Philippe Oertli, Pascal Bruhin, Simona Patrut, Stefanie Karrer
and Barbara Brzezek.

The authors also wish to thank those responsible for driving the fieldwork locally across
markets: Taroon Aggarwal, Christopher Calvocoressi, Pascal Vaucouleur, Fabrice Trioullier,
Alex Viale, Patrick Stoess, Ronan Grossiat and Patsy Pang. Special thanks also go to the
regional sponsors who supported the team with oversight and guidance: Scott Becchi,
Keith MacDonald, Dean Brown, Adrian Widmer, Andreas Toggwyler, Olivier Maréchal, Jan
Kehrbaum, Hermin Hologan, Mark Wightman and Jason McLean.

The data analysis would not have been possible without Felix Lange and Felix Laufenberg.

Thanks also go to those who provided valuable content reviews: in particular, Andreas
Toggwyler, Adrian Widmer and Michel Stofer.

Finally, the authors wish to thank Jimena Dupré and Alessandro Spadola for their creative
input and direction. The go-to-market process has been greatly supported by Katherine
Hetzel, Katherine Kurelja and Elizabeth Wynds.

Accelerating the transformation of wealth management through digital technology 55

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EYG no. 06675-174Gbl

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Accelerating the transformation of wealth management through digital technology