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1、 2023 Boston Consulting Group1Wealth and asset management firms are facing a formidable triad of challenges:rising costs,shrinkingmargins,and intensifying customer demands.Its a somewhat unenviable position for an industry longperceived as enviable by other sectors,especially in terms of consistent

2、profitability over long periodsof time.The rising-costs side is partly driven by higher technology spending,as players seek to offeralbeit,not always successfullythe kind of seamless customer experience thats commonplace in otherScalable Tech and Operations in Wealthand Asset ManagementJUNE 01,2023

3、By Omar Rahman,Michael Kahlich,Akin Soysal,Jrgen Rogg,Joe Carrubba,Rahel Lebefromm,MarkShields,Philippe Bongrand,Blake Howard,Din Mustaffa,Fabian Camenzind,and Matthias KrautbauerREADING TIME:15 MIN 2023 Boston Consulting Group2sectors.On the margin side,the ongoing rise of passive investments and t

4、he deterioration of feeincome are causing consternation in C-suites.As for wealth and asset management clients,they areless shy about voicing their digital product and services wishesand are more willing to vote with theirfeet.With pressures such as these occurring all along wealth and asset managem

5、ent value chains,incumbents are looking for ways to achieve several goals:accelerate their digital transformations,bring more of what their clients actually want to the table,and bolster assets under management(AuM).But heres the rub:they need to do it all in the most cost-efficient way possible.But

6、 how?Based on our experience,as well as that of FNZa global wealth platform provider that co-developedthis report with BCGa new breed of end-to-end,third-party platforms could be successfully deployedby wealth and asset managers to achieve meaningful impact that can include significant cost savings

7、inthe middle office and operations,the creation of new and innovative business models,and thegeneration of new revenue streams.In the current environment,the selection of the right platform will require the involvement of the entireexecutive team,including the CEO.The goals are,first,truly understan

8、ding the challenges at hand,and second,taking effective action.Grasping the ChallengesThe first step toward efficient and cost-effective transformation by wealth and asset managers comesfrom fully understanding the current industry driversforces that are made even more challenging byhigh market unce

9、rtainty,elevated interest rates,and slower AuM growth players are presentlywitnessing.2023 Boston Consulting Group3Rising Costs in Technology and Operations.Both wealth and asset managers have been strugglingto keep cost-to-income ratios(CIRs)in check.Despite largely favorable market conditions over

10、 the pastfew years,industry CIRs have risen,particularly for smaller players.More specifically,while larger assetmanagers witnessed a gradual increase between 2018 and 2021with a rise to 74%in 2022smallerasset managers with less than$300 billion in AuM saw a more pronounced increase to 78%.CIRs forl

11、arger wealth managers have been stable at 71%,while smaller wealth players,with AuM below$150billion,suffered a steep increase to surpass 82%in 2022,on average.(See Exhibit 1.)While some smallwealth players have managed to buck this trend by leveraging very lean setups,the general principlethat scal

12、e matters is well evident.Technology spending has been a key driver of these dynamics.The average share of technology in totaloperating expenses(also known as IT intensity)reached over 15%across both wealth and assetmanagers in 2022,up from 13%five years earlier.Over the same time frame,IT spending

13、wasparticularly on the rise in application development(+25%)and hosting(+19%),mirroring both theexpansion of new requirements as well as large investments in cloud migration.Meanwhile,although the pace of new regulation has slowed in recent years,its existing scope(e.g.,suitability requirements and

14、regular know-your-customer reviews)continues to impose operationalcomplexity and costs on the industry.2023 Boston Consulting Group4Shrinking Margins and AuM.For the first time since the 20082009 financial crisis,global AuMdeclined in 2022(by roughly 15%).Moreover,higher interest rates combined with

15、 sluggish GDP growthare expected to persist through 2025,leaving little hope for a strong rebound in industry revenues inthe short term.At the same time,wealth and asset managers are facing continuous margincompression driven by several trends:the increasing share of passive investments,rising compe

16、titionfrom digital players,and the consolidation of large incumbents with significant scale advantages(especially in asset management).As a result,return on assets(ROA)fell by 3%per year across bothasset and wealth management from 2018 through 2021.(See Exhibit 2.)Furthermore,observing the investing

17、 value chain,it is clear that while advisory fees have remainedrelatively stable,product fees have been hit by fierce competition and increased cost transparencywith declines of 11%for active funds and 35%for passive funds since 2017.Although the margin dropfor active funds appears less pronounced,t

18、he phasing out of sales commissions in certain Europeanmarkets as well as the increasing use of index funds for individually managed portfolios are exertingsignificant pressure.Increasing competition is also visible in the declining margins on model portfolioservices provided by wealth and asset man

19、agers(down 12%since 2017).Finally,asset-servicing marginsfor clients with more than$2 million have decreased by 16%since 2017,reaching as low as 12 basispoints for typical wealth management mandatesa decline driven by technology,scale economies,and increased transparency.(See Exhibit 3.)2023 Boston

20、Consulting Group5Intensifying Client Demands.At the same time,client demands are steadily rising along the valuechain,requiring wealth and asset managers to make further investments.We expect some of the mostsubstantial outlays to be in several areas,such as hybrid advisory(supported by seamless omn

21、i-channel capabilities),direct indexing(allowing replication of indices on individual portfolios in a tax-efficient manner),and managed portfolio services(allowing for higher levels of personalization thanwith traditional approaches for a large investor population).In addition,clients are increasing

22、lydemanding full transparency of their investments in order to ensure full alignment with their personalvalues and goals(e.g.,sustainability).Although fintech elements will be required as an enabler forwealth and asset managers to advance their business models,players will also need to adjust theiro

23、perating models in order to navigate the shiing landscape in a cost-effective manner.(See Exhibit 4.)2023 Boston Consulting Group6Faced with these challenges,how can wealth and asset managers best chart their way forward?Thepathway of using third-party players for essential services is becoming more

24、 and more viable.Third-Party Solutions Across the Tech Stack AreGaining GroundGiven the fast-growing demand for digital customer experiences and automated operations,its nosurprise that third-party providers are playing an increasingly important role in filling in-housetechnology gaps.Indeed,the sha

25、re of third-party technology spend has risen by more than 10%since2018 across both run-the-bank and change-the-bank initiatives at wealth and asset management firms.To illustrate the shis in spending,weve segmented the typical technology stack of wealth and assetmanagers into six layers:Digital fron

26、t-end and engagement,providing omnichannel interfaces to manage customer andadvisor interactions and journeysSmart workflows,which structure,orchestrate,and automate processes,integrating them withvarious business solutionsCore business capabilities,which provide product and service logic along the

27、value chain,suchas in advisory,portfolio management,execution,and asset servicing 2023 Boston Consulting Group7The largest shi to third-party offerings can be observed in differentiating infrastructure and datalayers,as companies move workloads to the cloud.Here,a handful of“hyperscalers”are takinga

28、dvantage of their ability to quickly scale computing resources and soware architecture up and downas needed to currently dominate the market.Acceptance of these services is steadily increasing ascloud providers invest to meet the data-privacy and cybersecurity requirements of financial firms.Bycontr

29、ast,in the upper layers of the stack,wealth and asset managers have a better chance of offeringa degree of differentiation in their digital front ends and engagement approaches,such as throughwell-designed customer journeys and seamless omnichannel experiences.Fresh Approaches to Technology and Oper

30、ationsHistorically,incumbent players with complex offerings have oen developed customized“in-house-first”applications optimized around stable operating models for significant parts of their tech stacks.Yet,with rapidly evolving customer needs and the proliferation of soware as a service(SaaS)offerin

31、gs,more players have started to opt for a“best-of-breed”approach,integrating a wider array ofthird-party solutions along the stack.While this approach benefits from faster access to innovation,itrequires significant integration capabilities and strong architecture standards to manage complexity.Cent

32、ral Data and Analytics Platform,which ingests,stores,and governs data to provide asingle client view as well as offer input for various AI and analytics-driven use casesCore Booking System,which provides a central repository for customer and account data,processes transactions,and offers reporting a

33、nd third-party integration capabilitiesCloud Infrastructure,utilized for scalable computing and network resources,as well as forfundamental services ranging from developer tools to cyber-security 2023 Boston Consulting Group8In addition,as many players struggle with integration capabilities,we have

34、started to witness a growingnumber of setups in which the financial institution deploys an end-to-end vendor platform for a largeportion of the stacktypically covering the non-differentiating activities.This approach significantlyreduces the need to develop a proprietary technology architecture and,

35、in some cases,even lowers theneed for in-house staff.Indeed,some vendors offer outsourcing for“commodity”functions in themiddle office and operations(See Exhibit 5.)Although such vendor-based options have mostly been used by smaller players or in minor officelocations of larger players,they have bec

36、ome increasingly popular with major incumbents in recentyears.This trend is owing to the rising importance of a faster time to market(e.g.,in the context ofbusiness strategy changes or frequent M&A activity),a general move toward open-finance andecosystem use cases,and the limited availability of in

37、-house tech talent.Of course,varying approaches have diverse benefits.The in-house-first and best-of-breed pathwaysoffer advantages such as full control over technology and functional specifications(allowing for morecustomization and differentiation),better control over operational and security risk

38、s,the developmentof in-house technology expertise as a potential competitive advantage,and not having to depend on anindividual vendor.Moreover,in-house applications with fully depreciated development spend can havelower run costsprovided they dont require significant change or maintenance work.2023

39、 Boston Consulting Group9End-to-end platforms,for their part,also offer a multitude of benefits such as lower maintenancecosts;automated regulatory and stability upgrades provided by the vendor;lower interface complexityand higher ease of integration through more standardized solutions;greater flexi

40、bility to executeoperating-model changes;more capacity for in-house tech talent to focus on value-adding parts of thestack;lower requirements for upfront capital expenditures;and a higher share of variable costs.Also,for firms that lack the scale to develop and run their own solution stack,this appr

41、oach may be the onlyviable option.How It Really HappensThe following three case studies illustrate typical benefits of the end-to-end model of technology andoperationsranging from cost savings to customization at scale to the ability to quickly launch newbusiness models.Case Study:Cost Savings with

42、End-to-End Wealth Platforms.A mid-sized wealth manager movedfrom a legacy technology stack to an end-to-end model for a significant portion of its middle-office andoperational applications.The company provides a range of services including planning and advisory,investment fund management,brokerage,a

43、ccounts,and retirement products across several countries,utilizing both in-house and external advisors as well as distribution agents.The scope of its outsourcing 2023 Boston Consulting Group10included several business applications,IT infrastructure,application management,core processes,and business

44、 operations teams,with certain activities co-managed between the wealth manager andthe platform partner.(See Exhibit 6.)The transformation took place over five key stages:targetoperating model(TOM)agreement;staff and system reassignment;realignment of business processes;building the model(including

45、quality assurance,and test release);and full client and asset conversion.The migration achieved an overall reduction of 25%in operating expenses across the entireorganization,with four key efficiency drivers(See Exhibit 7.)Front Office:Increased self-service and advisor efficiency via improved user

46、experience andautomation of tasks previously performed by front-office support teams.Middle Office:Achieved standardization of processes related to non-complex products,accounts,andinvestment schemes;improved market-access economics through automation and high trade volumes;and lowered product-devel

47、opment costs through faster production cycles.Operations:Accelerated automation and standardization of administrative,accounting,andsecurities workflows;extended third-party connectivity;improved centralization of controls and non-client data management;and enhanced scale economies in servicing high

48、 asset volumes.IT:Shied to cloud-based IT services,advanced data management and application programminginterfaces,as well as to centralization of application management and services.2023 Boston Consulting Group11In addition to short-term cost savings,the simplified operating model enabled the firm t

49、o modernize itsportfolio of offerings and consolidate a number of legacy services into a single seamless experience forboth its distribution network and its clients.These steps put the organization in a position to serve abroader set of client needs with a single platform,allowing the business to pl

50、ace more attention onacquiring new clients and expanding into new markets.Further review of the operating model,in the wake of the platform migration,identified additionalsavings potential along three main levers.First,a reduction of booking centers eliminated significantlocal fixed costs(including

51、custody,client data storage,compliance controls,and financial reportingper jurisdiction).Moving to direct-to-consumer distribution had the effect of centralizing services andlimiting the need for regional sales,advisory,and relationship-management staff to those strictlyrequired to cover major clien

52、ts and regulatory compliance in each jurisdiction.Finally,productsimplification resulted in streamlining offerings that were not easy to automate or handle via straight-through processing,such as highly customized discretionary portfolios,direct investments inalternative assets,and complex legal str

53、uctures such as trusts and foundations.Case Study:Achieving Personalization at Scale Through Open Wealth Platforms andManaged Portfolio Services.A large-scale European wealth manager with several hundred thousandaffluent and high-net-worth investors migrated from a complex setup with multiple legacy

54、 tech stacksand entities to a single,open wealth platform.The migration was completed against the backdrop of strong demand for discretionary managedportfolios in the local market,including restrictions on fund sales commissions and the growth ofdefined contribution pensionsmany of which had to be m

55、anaged by accredited financial advisors.The new open-platform architecture allowed investors to be served both in house as well as throughexternal advisers.The setup included a choice between three types of discretionary model portfolios:a“house”model managed internally by the wealth manager itself,

56、a model provided by a third-partyasset manager,and a model provided by the advisor covering the client.(Some external advisors mightalso employ dedicated portfolio managers.)Under the new model,clients pay separate advice fees(to either the platform or their external advisor)as well as administrativ

57、e fees to the platform for providing a range of services.Such services couldinclude digital customer journeys;access to a wide range of funds and underlying securities forportfolio construction;exchange and distribution of model portfolios;account and policyadministration;as well as corresponding fe

58、e bookings,trade execution,and asset servicing.(SeeExhibit 8.)2023 Boston Consulting Group12The wealth manager achieved a more streamlined operating model with a clear focus on managedportfolio solutionsallowing the organization to capture a higher share of discretionary managementfees(when“house po

59、rtfolios”were used).In parallel,the firm enabled a broader range of third-partyasset managers and external advisors to offer their Model Portfolio Service(MPS).(See“What AreModel Portfolio Services?”)Consequently,the firm witnessed a significant upli in pretax profit driven by an increase of over 50

60、%in net asset inflows per advisor in the first two years following the program launch.Model Portfolio Services have gained significant popularity over the past few yearsbecause they provide a more cost-effective way for wealth and asset managers to offermass-customized discretionary mandates to affl

61、uent investors.Individual portfoliosWHAT ARE MODEL PORTFOLIO SERVICES?2023 Boston Consulting Group13follow the target instrument allocations of the model portfolio with automatic ormanual rebalancing,using an overlay strategy typically combined with cost-effectivepassive funds,while model portfolios

62、 are provided by wealth managers,assetmanagers,or external financial advisors.(See the exhibit.)Compared with the traditional model,MPS offer a series of advantages for wealthmanagers:End-clients pay lower overall fees,as wealth managers can rely on low-cost fundsas underlying investments for model

63、portfolios,instead of on more-expensive,actively managed fundsthus attracting higher client volumes.Wealth managers can provide model portfolios directly rather than rely onstrategies provided by asset managers,thus keeping a larger share of client fees,even aer those paid to the platform partner.Ad

64、ditional customization can be easily achieved by switching the model portfoliosuch as pension asset allocation changing as a function of years to retirement.2023 Boston Consulting Group14Overall,we expect further growth in MPS as banks and wealth managers look tobenefit from delivering more-personal

65、ized discretionary services to their affluent andhigh-net-worth clients at lower cost to serve.In markets with developing investment-management industries,model portfolios provided by global asset managers can helplocal wealth managers achieve a higher degree of differentiation.Meanwhile,in someEuro

66、pean countries,model portfolio services are limited by regulation to institutionsthat offer both asset management and distribution,such as large asset managers andbanks.Case Study:An End-to-End Platform Allowed a Global Asset Manager to Launch a Direct-to-Consumer Offering in a New Market in Under T

67、wo Years.A US-based,global asset managementfirm with over$300 billion in direct-to-consumer AuM launched an app-based,digital-investingproposition to enter a new major market.The offering included both an option for self-directed fundtrading as well as a managed portfolio account based on simple pro

68、filing and strategy selection.Inboth options,the asset manager primarily offered its in-house Exchange-Traded Funds(ETFs)withproduct costs ranging between 10 and 30 basis points.Additionally,clients paid transaction fees in theself-directed option,or an all-in fee of 60 to 70 basis points for a mana

69、ged portfolio,covering bothaccount servicing and portfolio management costs.The asset manager was able to realize a time to market of under two years,despite having to bothapply for a new license in the launch country and build the entire operation from scratch.The initiativewas partly enabled by bu

70、ilding a technology stack on a digital end-to-end platform,with the aid of anoperations team provided by the vendor.Ultimately,the asset manager was able to integrate itsexisting capabilities in portfolio management,build a fully customized digital experience,and leverageseveral third-party solution

71、s for non-differentiating capabilities such as client identification and anti-money-laundering monitoring.(See Exhibit 9.)2023 Boston Consulting Group15Taking the Bold StepContinuous margin pressure,ever-evolving regulatory and cyber-security requirements,as well asgrowing investor demand for person

72、alization make it imperative for wealth and asset managers topursue digital and operating-model transformations with the most efficient use of resources.Given amixed track record with regard to large in-house digital initiatives,oen hampered by slow deliveryand budget overruns,many industry players

73、are looking for new alternatives to achieve these goals.Moving significant,non-differentiating parts of the tech stack to an end-to-end platform is one suchalternative,supported by the emergence of vertically integrated platform providers that coversubstantial parts of the value chain.With some of t

74、hese providers also offering outsourcing for middle-office and operations functions,wealth and asset managers now have more options than ever in theirquest to gain operating leverage and focus on core activities.Such platforms can yield benefits rangingfrom serving hundreds of thousands of end clien

75、ts with mass-customized mandates to operatingdirect-to-consumer models at low costpotentially realizing operating cost savings of up to 30%compared with more-traditional setups.Meanwhile,for institutions with diverse client segments and significant existing capabilities,pursuing a“best-of-breed”appr

76、oach remains a viable optionone that allows for the selection of specificsolutions from different vendors depending on the use case and layer of the technology stack.This 2023 Boston Consulting Group16approach gives institutions a higher degree of strategic flexibility and reduces dependence on a si

77、nglevendor.Yet,it also reintroduces some of the risks associated with the traditional in-house model,especially regarding the ability to deliver within time and budget.Ultimately,CEOs,CTOs,and COOs need to consider their own individual starting points and strategieswhen deciding which path to follow

78、,guided by the following topics and questions:From our perspective,wealth and asset management leadership teams should consider this new waveof alternative business and operating models as an opportunity to create competitive advantageeven if these options run counter to certain long-established pra

79、ctices.FNZ is a global platform provider in the wealth management sector,partnering withover 800 of the worlds leading financial institutions and over 8,000 wealthmanagement firms.With over 6,000 employees in 21 countries,FNZs mission is to use cutting-edgetechnology to open up wealth,helping everyo

80、ne,everywhere to invest in their future.FNZ removes friction from wealth management by integrating a modern adviser andend-investor experience with sophisticated investment administration and businessStrategic Flexibility:Does the new setup simplify the firms current application landscape andallow f

81、or quicker reactions to new market opportunities and requirements?Geographic and Product Coverage:Does the solution work for all markets covered,and does itpotentially provide access to new markets?Return on Investment:Is there a convincing business case for switching approaches,eitherthrough cost s

82、avings or access to new revenue streams?Track Record:What is known about the vendors history regarding security,reliability,innovation,and ability to deliverand is the company likely to be around for the long haul?Alignment of Incentives:Is there sufficient trust to support a long-term vendor relati

83、onship withhigh switching costs?Migration Requirements:Can the migration of current applications and business processes beachieved without jeopardizing the overall benefits of the project?ABOUT FNZ 2023 Boston Consulting Group17operations.By combining technology,infrastructure,and investment operati

84、ons into asingle state-of-the-art platform,FNZ frees its partners to create personalized andinnovative products and services that are seamlessly aligned with the needs of theirend clients.To date,FNZ has administered more than$1.5 trillion in client assets and enabledover 20 million people,from all

85、wealth segments,to invest in an effective,simple,andtransparent way.Expand Research(Expand)is a wholly owned subsidiary of the Boston ConsultingGroup.Expand delivers unique decision-support services that enable senior leaders todevelop,validate,and execute better business and technology strategies.E

86、xpandworks with some of the worlds largest financial institutions,enabling them to grow,compete,and operate with increased effectiveness.Expand is a specialist provider ofbenchmarks and market diagnostics and develops cutting-edge solutions to addressthe most pressing challenges the industry faces.A

87、BOUT EXPAND RESEARCH 2023 Boston Consulting Group18AuthorsOmar RahmanPRINCIPALZurichMichael KahlichMANAGING DIRECTOR&PARTNERZurichAkin SoysalMANAGING DIRECTOR&PARTNER,BCG XZurichJrgen RoggMANAGING DIRECTOR&SENIOR PARTNERZurichJoe CarrubbaMANAGING DIRECTOR&PARTNERNew YorkRahel LebefrommKNOWLEDGE EXPE

88、RTNew YorkMark ShieldsSOLUTIONS MARKETING DIRECTOR,FNZPhilippe BongrandHEAD SWITZERLAND&PRIVATE BANKING,FNZ 2023 Boston Consulting Group19Blake HowardHEAD OF SOLUTION MARKETING,FNZDin MustaffaGROUP CHIEF STRATEGY OFFICER,FNZFabian CamenzindHEAD OF BUSINESS DEVELOPMENT,EUROPE,FNZMatthias KrautbauerHE

89、AD OF STRATEGY,EUROPE,FNZABOUT BOSTON CONSULTING GROUPBoston Consulting Group partners with leaders in business and society to tackle their most importantchallenges and capture their greatest opportunities.BCG was the pioneer in business strategy when it wasfounded in 1963.Today,we work closely with

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92、lients thrive and enabling them to make the world a better place.Boston Consulting Group 2023.All rights reserved.For information or permission to reprint,please contact BCG at .To find the latestBCG content and register to receive e-alerts on this topic or others,please visit .Follow BostonConsulting Group on Facebook and Twitter.