Wealth management IT spending is estimated to reach USD4.4bn in 2012 and is expected to grow at a rate of approximately 6.4 per cent in 2013, reaching approximately USD4.7bn.
Broadly speaking, both Asia-Pacific and North American markets are driving IT spending growth for next year, while the European market will drag down growth in spending, according to a new report, Wealth Management IT Spending: A Global Perspective, from Celent, an international financial research and consulting firm.
North America and Asia-Pacific will continue to drive IT spending through 2014, while Europe remains at a slower pace in IT spending.
Beyond 2014, Celent expects Western European banks and wealth managers to recover from their current crises, and new markets in the Baltics to drive higher growth in European wealth management IT spending. However, improved spending in Europe is likely to be balanced by a "cooling off" period in North America and Asia-Pacific as wealth managers work through the major IT spending projects of 2013-2014.
As such, Celent expects global wealth management IT spending to grow at a consistent level with a five-year CAGR of six to seven per cent. By 2016, Celent expects global wealth management IT spending to reach USD5.7bn.
Europe now accounts for 43 per cent (USD1.9bn) of global wealth management IT spending, while North America makes up 39 per cent (USD1.7bn). At 18 per cent (USD0.79bn), Asia-Pacific still accounts for the lowest total spending among regions.
Celent expects that IT spending in North America will increase 6.9 per cent in 2013, from USD1.7bn to USD1.8bn. With a 6.6 per cent CAGR over the next five years, spending will ultimately reach USD2.2bn by 2016.
Growth in European IT spending will likely be cut in half, from 7.5 per cent in 2012 to 4.3 per cent in 2013, over the next year. Celent expects wealth management IT spending in Europe to reach USD1.97bn in 2013
Celent expects a 10 per cent increase in Asian IT spending for 2013, and an eight per cent CAGR over the next five years, ultimately reaching USD1.08bn by 2016.
While there are many ways to split the spending pie, there are two telling indicators of wealth management IT spending. First, Celent estimates that roughly 55 per cent of IT spending will go to the front office. Tools that will help the adviser capture client information and engage clients through more advanced and interactive tools will gain priority. Furthermore, while compliance tools are typically associated with the middle and back offices, rules around KYC and investment selection will increase spending on proposal generation and financial planning tools.
Secondly, wealth managers will allocate more of their IT resources to external software and services, as opposed to legacy internal systems and hardware. In 2012, global spending on external software and service was USD2.3bn, or approximately 52 per cent of total global IT spending (USD4.4bn). By 2016, Celent expects that global spending on external software and services will equal 57 per cent of total global IT spending.
Given the highly regulated environment, firms are changing their strategies. Wealth managers are optimising technology to create new service models and channels for different customer segments. In particular, their focus has been on adding technology for advisors and providing best-in-class service for investors through self-directed tools and improved advisor-client relationship. As a result of these trends, areas of IT spending include advisor end user tools, compliance, and new channels including mobile and social media, as well as integration and outsourcing.