October 03, 2002

Financial institutions will see a 5 percent compound annual growth rate in IT spending for wealth management by 2005, totaling $2.7 billion of their total IT budgets, according to a report released by TowerGroup at Fincentric's Customer Intelligence event recently held in New York.

The report attributes the escalation of wealth management technology spending from the current 2002 projection of $2.3 billion of IT budgets to the growing number of U.S. households with incomes in excess of $100,000.

"Despite the recent downturn in the economy, overall people have more wealth than they ever had before," said Dennis Ceru, director of the TowerGroup Retail Brokerage & Investing practice who led the report, adding that TowerGroup projects that assets under management will total $5 trillion in 3 years.

Although people are still making money, the negative economic climate has greatly contributed to the fear of managing one's own money, Ceru said, explaining that financial planning and advice will take the forefront in the new age of wealth management.

The report specifically notes the attention that a financial planner must pay to the lifecycle of the client. "Large numbers of people in our country are preparing to retire to retail (wealth management) very soon," Ceru says. "Their goals will shift and it will be the preservation and distribution of income as opposed to accumulation or growth."

Banks are particularly challenged by the prospect of servicing clients on a full scale of wealth management since brokerages have traditionally been perceived as comprehensive and knowledgeable financial planners, Ceru noted. However, he explained, banks have the advantage of clients' trust, a pivotal aspect of customer growth and retention.

Ceru stressed that there is not a single technology that can solve the problem of implementing a wealth management strategy, but that financial institutions must instead explore the areas where development is weak or lacking, such as customer relationship management, customer knowledge management, decision management, compliance and management reporting, and operations and integration.

For a copy of the report, contact TowerGroup at www.towergroup.com