Will the real market leader please stand up?

Wealth management technology could hardly be described as the most 'happening' or sexy area of the buy side, even though this aspect of the industry has grown significantly in terms of assets under management and platform sophistication. But as Stewart Eisenhart reports, although competition among vendors in the space has intensified, a clear leader has yet to emerge

NEW YORK – The North American wealth management technology vendor landscape remains largely fragmented, with different providers excelling at particular functions but no overall market leader.

A new report by Celent Communications, Ranking the vendors of wealth management technology, 2007: Platforms, compares nine wealth management technology vendors based on four criteria: advanced technology, breadth of functionality, number of clients and depth of client services.

Vendors evaluated included AdviceAmerica, DST International (DSTi), Fidelity Information Services, Finaplex, InvestEdge, NorthStar, Reuters, SunGard, Thomson Financial and Xeye. Each provider scored differently in each of the four criteria, showing particular strengths and weaknesses.

The Celent report outlines nine key technology components across the front and middle-back offices common to each of the wealth management platforms evaluated.

According to Isabella Fonseca, author of the report, front-office components focus on the wealth management advisor's client relationships, and include contact management, account aggregation, client prospecting and financial planning capabilities.

Middle- and back-office components link advisors with their home offices, and consist of portfolio construction, model administration, compliance, document storage and central data repository tools. The overall aim of these components is to satisfy clients' risk/return expectations, writes Fonseca.

Celent breaks down wealth management technologies and functions into four specific categories: financial planning; portfolio construction and asset allocation; data consolidation; and wealth management platforms. Fonseca writes that wealth management platforms serve as integration layers providing their own out-of-the-box functionality as well as connectivity to other financial planning and portfolio construction tools not available on the platforms themselves.

Fonseca explains how the aforementioned vendors ranked within each of Celent's four criteria.

In terms of advanced technology, AdviceAmerica and DSTi scored highest, especially given what Celent found to be robust integration capabilities; Xeye was commended for its modular, open platform, but its product is available only via ASP.

For breadth of functionality, DSTi and NorthStar ranked highest, followed by Reuters, Finaplex and SunGard. Celent found extensive support for portfolio construction, financial planning, risk management and product coverage across each of these vendors' platforms.

Reuters and Thomson clearly scored highest in terms of numbers of clients, with 680 and 500 customers respectively, using their wealth management offerings. Fonseca writes that vendors offering wealth management platforms typically have fewer clients than developers of particular wealth management tools such as financial planning or portfolio construction. In the case of Reuters and Thomson, however, these firms each have massive client bases to which they can cross-sell multiple products.

Finally, NorthStar, Reuters and Xeye ranked highest on the depth of client services criterion, which Celent attributes to their degree of partnerships, maintenance and support services as well as their security and disaster recovery capabilities.

The emergence of the wealth management platform market follows moves by vendors towards a more holistic approach to developing features and functionalities required by wealth management advisors.

Fonseca identifies a number of trends currently shaping the wealth management platform arena, including:

- Consolidation among existing vendors as well as new entrants such as DST International and NorthStar

- Expansion of functionalities, including data integration between multiple sources and modular approaches to implementations focusing on specific areas – financial planning, portfolio construction, compliance, and so forth

- ASP roll-outs to provide clients with lower-cost options and faster implementation times

- Extended market reach to attract a broader spectrum of clients in the wealth management industry

With these trends in mind, Celent anticipates interest in well-integrated wealth management platforms to grow in North American markets. Fonseca recommends that wealth management firms looking to implement such a platform consider several factors.

First, prospective clients should consider their data integration and aggregation requirements, as well as how easily a wealth management platform would integrate with other components of their infrastructure.

Advisors and other wealth management institutions should also look for flexible workflow support in any platform they are evaluating, as well as whether a vendor under consideration offers web-based or desktop delivery methods.

Fonseca also cites modularity as a key component to look for – wealth management institutions will increasingly require platforms that can add new functionalities on an as-needed basis.

Vendors must also ensure robust core functionalities in their platforms in terms of financial planning, portfolio construction, reporting, trading and compliance tools, as well as client support and security services which more often prove key competitive differentiators in the wealth management technology space.