Build Versus Buy On Wall Street - InformationWeek

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4/22/2004
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Build Versus Buy On Wall Street

Growing wealth-management businesses offer the latest round of decisions on whether to custom build or buy off-the-shelf

One of the biggest contests on Wall Street these days is the competition gearing up in the wealth-management businesses--offering high-end services to the richest clients. It's a strategy dependent on business technology for services and information that affluent investors expect. Yet the firms are using a mix of execution strategies, combining in-house technology departments, outsourcers, and vendor partners.

As financial advisers are pushed to provide an overall plan for clients, rather than simply offer advice on a transaction-by-transaction basis, the time is ripe for wealth managers to invest in technology, says Donie Lochan, VP of Cap Gemini Ernst & Young's global financial-services' wealth-management business. Most of the systems that have been built over the years at wealth-management firms are for transaction-based businesses, rather than for a holistic wealth-management business model, Lochan says. "The huge cost of maintaining applications has caused firms to look at tech spending differently," he says, lending credence to new operating models.

Wachovia Securities LLC is the latest to offer new wealth-management technology, and it's relying heavily on a service provider. The company recently turned to Thomson Financial to provide its 19,000 advisers with front- and back-office tools. It's a $200 million investment, involving migrating 6,000 desktops used by people who'd previously worked for Prudential Securities (which recently merged with Wachovia) from Reuters workstations to Thomson's newest broker workstation, Thomson One, says Sharon Rowlands, Thomson's president and chief operating officer.

Wachovia also is upgrading its Thomson desktops to the Thomson One version. Thomson will supply Wachovia with back-office processing and provide integration between the back and front offices. "We're going to be involved in managing a lot of the Wachovia project," Rowlands says, noting commitment to migration, rollout, and training. "A big chunk of the work sits with us, but we're confident there will be a strong combined Wachovia-Thomson effort."

Wealth-management businesses face the classic question of whether to build or buy IT systems, and whether they gain any advantage from building their own. Jaime Punishill, a senior analyst at Forrester Research, contends they don't and outsourcing wealth-management technology could be the next big move in the industry. "The big debate is, do you run your own system, buy another system and run it in-house, or outsource altogether?" Punishill says. "You don't gain any differentiation by running your own back office." That kind of thinking will increasingly take over in front-office applications, he says. "What separates Merrill from Morgan? The expertise, the investments, the strategy. How many clients would say technology? Virtually none."

RBC Dominion Securities Inc. made the decision in 2001 to focus its efforts on the front office of its wealth-management business. Hoping to find the same market expertise it had found with some of its off-the-shelf back-office tools, RBC sought a partner for help. "The competitive advantage in wealth management is about product offerings and how you service the client, not necessarily being the best software builder in the world," says John Tracy, manager of strategic initiatives for the company.

Confident that many vendors had developed a grasp of the front-office wealth-management market and were bringing technology to the table to address it, RBC looked to x.eye Inc. for a front-office system. RBC opted to deploy x.eye's portfolio-management and contact-management products to replace at least six different legacy systems it had "cobbled together," Tracy says.

The implementation included 3,000 desktops, done in two installations. It also would shut off legacy applications, though RBC had to balance that desire against financial advisers' intolerance for any changes that disrupt client service. "The cultural implications of this business are incredibly unique, since advisers see themselves as business partners," he says.

One area RBC decided to keep in-house was the integration layer between its front- and back-office systems. "We're picky about our feed and design-loading process because we know our data better than anyone," Tracy says.

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