Retirement, Boomers and Systems

May 4, 2006 David Gemma No comments exist

TowerGroup predicts massive retooling of Back Office will be required.
by Joseph Walker

TowerGroup, a leading provider of research and analysis, recently predicted that the oncoming tidal wave of retirees and their complex “needs-driven” financial planning process will lead to a massive overhaul of the financial services IT infrastructure.

Gavin Little-Gill, Director of Securities and Investments at TowerGroup, speaking at a recent ISITC Conference in Boston, forecasted that emerging investment products and householding requirements simply cannot be serviced with our existing operations and technology infrastructure. Little-Gill believes that current systems cannot support the full asset coverage that will be required by asset managers in the near future. Within the next five years, 77 million retirees will drive these systems to the breaking point.

Everybody has something to say about retirement, Baby Boomers, and financial services. The most recent voice added to the chorus was that of Little-Gill, who astutely predicts the demise of substantial portions of our aging back office infrastructure. I, for one, find his words both refreshing and prescient. For more than two decades, I have watched the asset management community place one band-aid over another in an attempt to preserve huge investments in legacy systems. The time has come for our industry to make some wise choices and long-term investments.

Baby boomers are forcing the issue that should have been forced years ago—our technology, and the way that it is deployed, does not address the needs of the people that it is supposed to service. For years we have incrementally bolted on functions to handle everything from new asset types to aggregated reporting requirements. The result has been a sprawling set of systems and interfaces that are not durable in the face of change.

As the end client, particularly the retail end client, begins to shift from the acceptance of packaged investment product to the demand for tailored strategy, everything will change. Right now our suitability tools sift through preferences and create investment strategies based on asset allocation and products. Clients just don’t tend to think this way—they often have a set of needs that they are looking to meet. Investment managers increasingly own a portion of the client’s wealth management picture without the benefit of knowing what’s going on elsewhere. That makes holistic strategy development pretty challenging and virtually eliminates the possibility of meaningful reporting.

Even if a manager somehow convinces clients to give them everything, they can’t account for value, benchmark and report on the full array of assets with what they have at their disposal. Show me a portfolio system that can properly book derivatives, insurance, annuities and traditional assets. Even if you’ve coaxed your systems into doing this, how do you know whether you are still on target with a financial plan, investment objectives or guidelines established by the client?

I recently stated that the cost of “best of breed” implementations had become prohibitive when you factor in the cost of implementation and integration with multiple systems. That’s not very good news for a lot of people, especially companies like mine. Since UNAPEN provides many of the missing pieces and value-added components for investment systems, we spend a lot of time implementing and integrating. What gives me hope for the future and a business plan that I can bank on? Quite simply, the financial services industry has never coalesced around any standard or practice until absolutely required to do so, either by regulatory or economic mandate.

I predict a substantial economic mandate (with a little regulatory boost) that will demand that most of the service agents in financial services implement a modern set of business practices. These business practices will be a mix of operational workflow, information management standards and systems architecture that will allow a cost-effective business model for servicing a huge volume of very discerning customers (baby boomers).

I’ve never felt like waiting for the rush, so we’re making some early bets—on technology, on data interchange, and on service models. The software and services that we deliver to our clients, that helps them service their clients, already incorporates needs-driven constructs. Now we have to make sure that our partners can provide us with a meaningful level of data interchange that allows our clients to shift operational processes for better implementation of investment strategy and more meaningful customer interactions. Let’s see if that really happens and who will lead the charge.

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