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Platform harmonization in wealth managementFocusing on the four drivers of business benefit

Platform harmonization in wealth management 1

The past decade has witnessed rapid transformation, growth and consolidation in the Canadian wealth management industry. The top financial institutions have grown significantly in size, either through M&A activity or organic growth fuelled by constantly evolving products and channels, as well as the growing affluence and sophistication of their clientele.

The wealth management divisions of these firms have also grown in size and complexity. These divisions comprise, in turn, multiple business lines (e.g., brokerage, private client, investment counsel), often each with its own set of processes and technology, frequently offering similar services to the same pool of potential clients (see Figure 1).

Supporting the requirements of these business lines is an increasingly disjointed mosaic of applications and databases tied together with different types of interfaces, data feeds

and services which are added to the mix as required. Currently, each business line is responsible for selecting the systems it requires, creating a situation where the firm as a whole is supporting many duplicate or overlapping systems.

Whether provided through third-party vendors, developed in-house or a combination of both, this technology landscape is proving increasing costly and resource intensive to manage.

Consolidating these systems where possible, both within and across business lines, represents an opportunity for financial institutions to realize significant long-term benefits through cost savings, increased efficiency and enhanced data access, as well as removing barriers to strategic enablement.

What are the key factors that are driving firms towards a platform harmonization strategy, and how can EY help both IT and your business stakeholders build a business case for implementing such an initiative?

Multiple businesses, multiple platforms

Front office application landscape

Mid-office application landscape

Back office application landscape

Workflow and CRM

Brokerage

Proposaltool

Portfoliomanagement

Financialplanning

Assetallocation

Ordermanagement

Performancereporting

Feebilling

Market data

Book ofrecord

Generalledger

Campaignmanagement

Clientonboarding

Relationshipmanagement

Directinvesting

Portfoliomanagement

Ordermanagement





Workflow and CRM

ProposalTool

Financialplanning

Assetallocation

Feebilling

Market data

Book ofrecord

Generalledger

Campaignmanagement

Clientonboarding


Retailadvisory

Portfoliomanagement

Ordermanagement





Workflow and CRM

ProposalTool

Financialplanning

Clientreporting

Feebilling

Market data

Book ofrecord

Generalledger

Campaignmanagement

Clientonboarding


Privateclient

Portfoliomanagement

Ordermanagement





Workflow and CRM

ProposalTool

Financialplanning

Clientreporting

Feebilling

Market data

Book ofrecord

Generalledger

Campaignmanagement

Clientonboarding


Figure 1. Wealth management lines of business within the same firm often use different systems to perform the same function

Platform harmonization in wealth management2

For IT and business professionals alike, the prospect of mapping their current systems and process landscapes, let alone coming together on an ideal future state, is a daunting task. After all, each of these systems was added to address a specific business need, and generally would have had to meet stringent business case and procurement requirements prior to being added to the existing ecosystem. Achieving consensus across business lines and geographies is difficult in situations where users believe only their chosen platform will meet their unique requirements.

However, as Figure 2 depicts, there are four key factors driving firms towards the realization that platform harmonization can provide some significant benefits:

1. Business standardization2. Platform management cost savings3. Enhanced business insights4. Strategic enablement

The following delves deeper into each of these factors and presents a business case view for why firms should consider a platform harmonization initiative.

1 Business standardization

The global financial sector has gone through rapid consolidation over the last 10 years, and Canada is no exception. High-profile names such as Dundee Wealth, Wellington West, AIG Life, E-Trade Canada, Philips, Hagers & North, McLean Budden and others have disappeared from the broader domestic landscape.

At the same time, Canada’s top institutions have taken advantage of the strong Canadian dollar to make acquisitions across the globe. Surviving firms are larger and more complex than ever before (see Figure 3). The need to reduce the complexity caused by this high level of M&A activity makes business standardization a key driver in the case for a platform harmonization strategy.

Mergers and acquisitions often come with a certain degree of political sensitivity around the fate of the acquired or junior partner in the merger. In an effort to downplay the disruptive change caused by the transformation, firms often promise a “business as usual” window, where processes, systems and sometimes even branding remains unchanged for an extended period as the acquired firms adjust to their new organization. While wanting to minimize disruption and behave sensitively towards the acquired business is a laudable goal, once a certain period of time has passed, and the M&A activities are no longer top of mind, resources and strategic focus are often shifted towards other goals. This shift leaves the task of fully integrating the new business incomplete, as issues of overlapping or duplicate systems and processes end up in the “too hard” bucket.

Four key drivers for undertaking a platform harmonization program

1Business

standardization

2Platform

management cost savings

3Enhanced business insights

4Strategic

enablementPlatform

harmonization

Figure 2. Four key drivers moving organizations towards a platform harmonization program


2004

RBC TD BNS BMO CIBC* NBC

2013 2004 2013 2004 2013 2004 2013 2004 2013 2004 2013

Assets under management (AUM)Assets under administration (AUA)

93

385

387

639 124

279

257

293 2097

145

32680

157

184

369209 234

33148

41

217

AUM/AUA of Top 6 Banks’ wealth management divisions (C$ billion)

The resulting technology silos constrain the firm’s ability to take advantage of synergies between lines of business — which is often the reason for the acquisition in the first place. As separate lines of business evolve in parallel, with new product offerings, processes and supporting technology, the problem is often exacerbated as each business line continues to diverge.

For firms in this situation, there truly is no time like the present to begin a program of platform harmonization and start the process of integrating overlapping systems and processes.

Acquisitions made in wealth management industry between 2004-13

• BlueBay Asset Management Plc

• Fortis Wealth Management (HK)

• Mourant Private Wealth

• Richardson & Barr Co

• Phillips Hager & North Invest

• Ferris Baker Watts• Seasongood &

Mayer• JB Hanauer & Co• Daniels &

Associates• Carlin Financial• Amer Guaranty &

Trust• Abacus Financial

• Epoch Holding Corp

• Ameritrade Holding Corp

• Banknorth Group

• Howard Weil Inc.• Daiwa Securities

(European)• Dundee Wealth• WaterStreet Group• Five Continents• CI Financial

Income Fund• E Trade Canada• AFP Profuturo• Osprey Media

Income Fund

• F&C Asset Management

• Canadian Imperial (Singapore)

• COFCO TrustCo• Lloyd George

Management• Stoker Ostler

Wealth• Griffin, Kubik,

Stephends & Thompson

• Pyford International

• Fullgoal Fund Management

• Atlantic Trust Private Wealth

• MFS McLean Budden P rivate Wealth Ltd

• American Century Investment

*CIBC’s AUM are included in AUA

• Wellington West Holdings

• HSBC Sec-Invest Advisory

• Retirement Option Group

Figure 3. AUM/AUA of top six banks’ wealth management divisions (C$ billion)

Source: AUA/AUM - Annual Reports, Acquisitions - Thomson One and SNL.


2 Platform management

cost savingsIn an IT environment with a proliferation of systems, substantial resources are required to manage the complexity and required interaction between systems. Platform management teams must handle the relationships between

business lines, vendors and internal application support and development groups.

Further adding to the complexity, these applications and services could be licensed and run on internal infrastructure, accessed by the firm but run on the vendor’s hardware and infrastructure in an application service provider (ASP) model, or be wholly outsourced to a vendor. A recent EY study highlights the complexity of the average platform portfolio mix in Figure 4. Reducing this complexity through a platform harmonization program can result in a significant reduction in operational costs.

CRM Client-relatedfunctions

Product management/

portfoliomanagement

Trade ordermanagement/

trade processing

Cashmanagement

Portfolioaccounting

Compliance/regulatoryreporting

Enterprise datamanagement

Proprietary Software package ASP Outsourcing

38%

50%

12%

4%

81%

19%19%15%

48%

28%24%

12%

44%

52%

12%

20%

40%

20%

28% 28%33%33%

38%

8%

81%

31%

8% 8%

77%

27%

4%0%

Average application portfolio mix. EY 2012 Americas wealth management study: Enhancing the advisor and customer experience through technologyFigure 4. Average application portfolio mix

Source: “Enhancing the advisor and customer experience through technology: EY 2012 Americas wealth management study”


In-house considerations: Many financial institutions maintain large IT development groups, which are responsible for the creation and maintenance of required applications. These types of applications run the gamut from core business applications, such as customer relationship management (CRM) or portfolio management to very specialized add-ons for existing applications developed to provide functionality that could not be obtained from a vendor.

Some of the many functions that must be monitored and managed for each application include:

• Staffing (application support and development)

• Corporate development standards, style guides and toolkits

• Infrastructure support

• Integration/reconciliation with other systems

• Testing

External considerations: These in-house systems work with applications and services provided by external vendors. When dealing with vendors, application management teams need to manage not only individual vendors but the competing relationships and processes among vendors. For example, if an accounting system requires securities prices before key jobs can run, the vendor management team needs to ensure those prices are available from the relevant vendor system at the required time.

Some of the issues that must be considered when managing vendors across platforms include:

• Licence/ASP costs

• Timing of contract renewal dates

• Timing of software upgrades and bug fixes

• Scheduling of interdependent jobs and data feeds

• Potential conflicts between vendor service level agreements (SLAs)

In addition to the reduction in operating costs incurred by the platform management tasks, savings can also be achieved through preferential licensing agreements. Most vendors price their products and services based on volume. Volumes measured for pricing purposes include number of users, accounts or assets under management, with costs per unit declining as volumes increase. By fragmenting usage across multiple applications/vendors, the firm is not able to take advantage of its scale to justify preferential pricing.

When these scenarios are multiplied across applications, business lines and geographies, and are combined with the decreased complexity and demands on application management resources, the business case for potential savings from a platform harmonization program becomes compelling.

Representative case study #1 As an example, let’s take ABC Bank, whose wealth management division has both a private client group, which was the result of an acquisition, and a longstanding full-service brokerage vertical. Both groups use different performance measurement applications, which for the purposes of this example are priced identically. The licence schedule is as follows:

With each business unit acting independently, ABC Bank is unable to take advantage of the price discounts that would apply to its full user base, in this case a 20% savings in licence costs.

Number of users Price per user (C$)

<1,500 $950

1,501–2,500 $750

>2,500 $650

# of users Price per user (C$)

Total cost

Private client group 1,000 $950 $950,000

Full-service brokerage 2,000 $750 $1,500,000

Total $2,450,000

Combined scenario 3,000 $650 $1,950,000

Difference (savings) $500,000


3 Enhanced business insights

As technology capabilities continue to increase, retailers, manufacturers and, of course, the financial services sector are using advanced data analysis tools. These sophisticated tools are being used to glean deeper insights and detect correlations between the behaviour of investors and advisors, and how they relate to performance. Such insights drive new products, inform cross-selling strategies and assist in transforming operating models.

The downside for many firms is that the quality of the analysis is heavily dependent on the quality and types of data that are fed in. An environment with multiple, disparate systems creates stand-alone “data silos,” where information

is contained within specific business lines and is difficult to extract and combine with other sources across the firm. This type of environment makes strategic data analysis time consuming and costly.

With the emergence of new channels using mobile devices and social media, data is being captured from new sources in a far less structured way that often bypasses traditional silos. In many cases, this data cannot be used in current structures to help drive revenue. According to recent EY research (see Figure 5), customer interactions with financial institutions will continue to expand to include a wider spectrum of channels. Almost three in four customers will use more than two channels, with almost one in four using five or more channels to interact. This trend implies that firms have access to an unprecedented amount of information that they are unable to take advantage of because of these traditional, vertically separated environments.

25% of consumersuse 1 or 2 channels

1 channel 2 channels 3 channels 4 channels 5 or more channels

52% of consumersuse 3 or 4 channels

22% of consumers use 5 or more channels

Customer channel usage

Many companies are reviewing their overall information strategies hand in hand with application consolidation initiatives in order to truly achieve the benefits of cross-channel customer insights. An information strategy harnesses the vast amount of data available to the firm

and turns it into useful knowledge, while establishing a foundation for future data management. Consolidating data sources into common formats and locations allows firms to take full advantage of the advanced data analytics tools available.

Figure 5. Customer channel usage

Source: EY analysis


4 Strategic enablement

Traditionally, wealth management divisions have been organized along vertical lines based on client type, or advisor/broker registration. Most large firms have private wealth, full-service brokerage, online brokerage, private banking and asset management divisions, each with its own technologies to support its line of business. These divisions offer similar services, are often competing for the same client and are therefore reluctant to share information.

Firms are moving towards alternative business structures that are more horizontal, with the aim of offering holistic wealth management services. To enable this strategy, platform harmonization can play a key role.

For some firms, this takes the form of a simple change in reporting structure. In others, it’s a wholesale change in the firm’s operating model. For example, the financial planning offering, currently managed independently in each silo, could conceivably drive a new structure leveraging common business tools and methodologies across all business lines.

Unfortunately, the current vertical silos and their duplicate, overlapping systems represent technological barriers to enabling these strategies and developing a true, client-centric structure. Competing tools and fragmented workflow prevent the offering of holistic wealth management services, as well as effective management reporting, to create “big picture” views of the wealth management organization as a whole.

Representative case study #2 Take an example of a typical wealth management organization with three verticals. Their application mix is shown below. If a household had accounts across all business lines, the firm would be hard pressed to provide a consolidated view for this household, with different performance reporting solutions and different statement providers. Client reports and fees calculated for each of the verticals would have to be cross referenced to ensure period-end securities prices are consistent for each account, given the different data providers. Financial plans may be generated using different market assumptions. In such an environment, it is difficult to provide a consistent client experience.

Full-service brokerage

Retail banking

Investment counsel

Book of record Broadridge Proprietary Broadridge

Portfolio management SS&C Advent CGI

Performance reporting SS&C Proprietary Statpro

Client statements CGI Symcor Broadridge

Transfer agency RPM CGI Univeris

Fee billing Bonaire Proprietary Proprietary

Market data Thomson Bloomberg Statpro

Financial planning N/A PlanPlus Naviplan

Compliance Proprietary Advent Charles River


At EY, we believe platform harmonization represents an opportunity for financial institutions to derive significant, long-term benefits through the realization of cost savings, increased efficiency, enhanced access to data and strategic enablement. Too often, applications and systems are added based on narrowly focused, tactical needs — software “A” will solve problem “X.” A platform harmonization strategy provides the opportunity for firm leadership to take a step back and view the application ecosystem from a strategic, big-picture perspective and begin to identify the synergies that can be realized across business lines and geographies.

Making the case for change

Benefit Business case

Cost savings • Efficient use of application management teams• Reduced number of vendor relationships and contracts • Potential for preferential volume-based pricing• Fewer interfaces to create and maintain• Reduced reconciliation activities

Increased efficiency • Aligned processes with fewer systems and streamlined workflow• Use of next-generation technologies and related efficiencies • Reduced reconciliation activities

Enhanced business insight • Greater insight into client base• Opportunity to take advantage of sophisticated analytical tools• Holistic management and client reporting abilities• Identification of cross-selling opportunities

Strategic enablement • Alignment of wealth offering across business units and geographies• Removal of technological barriers to holistic wealth structures• “360 degree view” of clients and households• Identification of cross-selling opportunities


Our platform harmonization approachOur Wealth & Asset Management team has a methodology (see Figure 6) to guide firms through a platform harmonization initiative, from current state analysis and application mapping to vendor selection and strategy execution. Our teams of professionals in Canada and around the world have experience supporting financial institutions through complex transformational programs.

Figure 6. Our approach

Current state process and

systems mapping

EY accelerators, tools and enablers (e.g. data queries, cost/benefit analyses, gap identification, templates, workflow mapping)

Analysis and recommendations

Future state requirements

Transformation planning Implementation

• Assess opportunities arising from drivers of business benefit

• Document existing processes across business lines

• Inventory current systems used in course of business

• Overlay process map over system architecture

• Identify required workarounds, choke points, manual processes and other issues

• Evaluate current state• Identify areas for process

improvement• Identify systems overlap

and duplication• Identify required

workarounds, choke points, manual processes and other issues

• Generate, prioritize, and document recommendations for next steps

• Agree to approach• Define strategic

corporate business and technology requirements for future state

• Define business requirements for individual business lines

• Map alignment of future state activities and technology requirements between business lines

• Align with broader wealth management strategic framework

• Revisit and reconfirm priorities

• Establish budget• Map current-to-future

state path for business and technology requirements

• Design transformation timeline and approach

• Develop testing strategy• Conduct financial

modeling of implementation options

• Develop business case

• Assistance in the creation of RFP/RFI’s

• Vendor scoring and evaluation

• Data migration planning• Platform consolidation• Testing and validation• Tracking of realization

of benefits

Within each stage of the approach, we deploy proprietary accelerators, tools and enablers to analyze critical information, accelerate solution design efforts and support senior stakeholder consensus. Our end-to-end methodology has helped leading wealth and asset management

firms develop and implement comprehensive platform harmonization programs, and realize the benefits that follow. Contact us to help you design your firm’s platform harmonization strategy.

Contact usGregory Smith Partner, Wealth Management Advisory Leader +1 416 943 4593 [email protected]

Dave Inglis Manager, Wealth Management Advisory +1 416 943 3831 [email protected]

David Hurd Manager, Wealth Management Advisory +1 416 943 4429 [email protected]

EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

© 2014 EYGM Limited. All Rights Reserved.

CSG 1230852 EYG No. EH0170

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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