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Vendors Upgrading Wealth Platforms

As demand for wealth management services increases and more asset managers enter the business or expand their offerings, technology vendors that offer wealth management platforms for those companies to sell their products through financial advisers are upgrading and adjusting those systems.

Just as asset managers are adjusting their business models to serve high-net-worth investors, so, too, are technology providers, said Matt Schott, research director in the brokerage and wealth management practice at Needham, Mass.-based TowerGroup.

In particular, vendors are broadening their wealth management platform capabilities with added tools and infrastructure to make sure data flow is seamless, Schott said. Compared to a few years ago, vendors are fine-tuning their platforms to make them as service-oriented as possible, he added.

In the past few years, the market has evolved. For one, while there has been more consolidation, a number of firms have entered the market, and this trend will continue, said Isabella Fonseca, an analyst with Celent and author of the company's recent report "Ranking the Vendors of Wealth Management Technology Platforms."

"In the aim to provide a complete front to back office solution, platform vendors will seek to either build some of the functionality themselves or partner with specialty players," Fonseca said. "There is a shift in the market for a one-stop shop." An example of vendor acquisition in the space includes Fidelity Information Services' acquisition of Sanchez in 2004. As for new entrants, NorthStar began offering a wealth management solution in 2001.

Asset managers are looking for advanced technology that offers a wide breadth of functionality, proven solutions and good customer support. Vendors should pay particular attention to include integration, compliance, client support and multiple delivery options to remain competitive, Fonseca said.

Platforms that provide clients with a lower-cost option, typically available with vendors hosting a web-based offering, will continue to become popular. Within the last few years, Xeye launched ASP Xeye Online and Finaplex launched OnDemand.

Additionally, firms will seek to extend their market reach, whereas in the past they have focused on just one segment. Now, value-added services and functionalities will allow them to serve a broader spectrum of the market, according to the report.

Celent identified nine major technology components that comprise a wealth management platform. The components fall into two primary areas of front-office operations and middle- and back-office operations.

"There has always been a struggle to integrate front- and back-office operations as much as possible to lower costs and provide real-time information," Fonseca commented.

There are certain features initiated at the front office, but require back-office approval or data to be completed there, Fonseca said. Front-office components support an adviser's relationship with the client and include contact management, account aggregation, sales and advice, and financial planning.

Middle- and back-office operations focus on the adviser's link to the home office, including portfolio construction, model administration, compliance and document storage.

More and more, the two components are being integrated. "Platforms provide the technical infrastructure for a wealth management service. Designed with an open architecture, platforms offer the ability to integrate with third-party solutions, adding a broad range of features," the report states.

The report examined 10 vendors, including AdviceAmerica, DST International, Fidelity Information Services, Finaplex, InvestEdge, NorthStar, Reuters, SunGard, Thomson Financial and Xeye. The vendors were ranked in the categories of advanced technology, breadth of functionality, number of clients and depth of client services. The report found that while there is no one clear leader in all categories, there were different levels of functionality within them.

As to breadth of functionality, DST and NorthStar received the highest score, followed by Reuters, Finaplex and SunGard. The vendors all provided extensive support for portfolio construction, financial planning, risk management and product coverage.

In the area of advanced technology, which factors in ease of integration to other systems and performance, AdviceAmerica and DST received the highest marks. Xeye provides a modular and open platform, but provides only a web-based option for clients.

In terms of number of clients, Reuters and Thomson have the largest client base, with 680 and 500, respectively. One factor that can explain this is that both offer multiple solutions, not only for wealth management, but for other asset management services, the report stated. Following are Fidelity and AdviceAmerica, with 40 and 50 clients, respectively. The other vendors examined had fewer than 20 clients.

In regard to depth of client services, which examines resources available and deployment options, the top quartile is dominated by NorthStar, Reuters and Xeye, which offer extensive partnerships, maintenance and support services. Following those firms are AdviceAmerica, DST, Fidelity and SunGard.

The business certainly is lucrative; the majority of platform revenue is between $5 million and $10 million a year. However, a few firms were making more than $100 million annually, Celent found.

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