Technology transformation has significantly increased the complexity and cost of organizational structures in wealth management. Key IT issues and trends include client reporting, managing high IT costs, enabling straight-through processing, and accommodating regulatory and business changes. Wealth managers must address these challenges to remain competitive and efficient.

Increasing Complexity in System Architecture

Modern wealth management systems require robust links to third-party systems. Customization and sophistication in client reporting are essential for branding and communication. Additionally, providing relationship managers with a single, integrated view of client product holdings is crucial.

IT Organizational Models

Four basic IT organizational models have emerged:

  1. Core Private Banking Package Model
    • A universal private banking package covers all major processes and functions, with a few specialized satellites.
  2. Product Split Model
    • Different IT systems support specific banking products, integrated by a common CRM application.
  3. Functional Split Model
    • Vertical IT systems are in place for different functions along the bank, such as front, trading, back office, and accounting.
  4. Mixed Model
    • Strong vertical CRM and portfolio management systems combined with horizontal systems for backbone processes.

Challenges in IT Investments

Wealth managers often struggle to realize the added value from significant IT investments, particularly in delivering services to the front office. Nearly a third of IT investments fail to deliver full value. Limited funding necessitates focusing investments on areas with short-term, tangible bottom-line impacts. Additionally, large initial investments followed by regular upgrades are required as technological cycles shorten.

Components of Successful Technological Transformation

A successful technological transformation should address infrastructure, applications, architecture, and the business/technology interface. The business side must effectively communicate its requirements to IT, ensuring accurate delivery through transparent pricing, joint service level agreements, and continuous budget and cost control.

Instilling Operational Excellence

Operational excellence and cost management require creating and sustaining a cost management culture. Challenges include unclear targets, opaque costs, diffused responsibilities, and top management’s lack of familiarity with operations and technology. The drive to operational excellence must come from the top, with clear aspirations, accountability, transparency, and relentless focus.

Operational Redesign

Operational redesign starts with reviewing participation across the value chain, focusing on simplifying complex business processes and moving to a more variable cost base. This review includes assessing the visibility and importance of activities to clients, comparing the firm’s delivery capabilities to alternatives, and evaluating future investment needs.

Integration Challenges

Many wealth managers face system fragmentation due to legacy infrastructure, mergers, and geographical expansion. Integrating multiple back-office entities and ensuring front-end or back-end integration are significant challenges. The optimal operating model must be flexible and robust to respond to industry challenges, such as new product development, regulatory requirements, and market penetration.

Key Components of a Modern Operating Model

  • Unified and Simplified Model: Lower cost and improved effectiveness.
  • Governance Principles: Agreed set of governance principles.
  • Common Service Company: Integrated back offices, IT, and support functions.
  • Service Level Agreements (SLAs): Clearly defined SLAs between business units and the service company.
  • Re-engineered End-to-End Processes: Streamlined and efficient processes.

Outsourcing and Insourcing

Outsourcing and insourcing have become core issues due to the complexity of technology in banking. Outsourcing involves transferring authority and responsibility to a third party (insourcer), while the outsourcer focuses on product development. Agreements should include rewards for success and penalties for failure, considering the risks and benefits analytically.


Technology transformation in wealth management involves addressing increasing complexity, optimizing IT investments, instilling operational excellence, and redesigning operations. Successful wealth managers will adopt flexible, robust operating models and make informed decisions about outsourcing and insourcing to enhance efficiency and service delivery.