by Olivier Vuichard
Legacy IT systems for wealth managers are costly and challenging to replace. Several firms have struggled in recent years and many have seen significant overruns – even abandoned projects and write-offs. Given the speed at which the industry is evolving, this trend can’t continue.
There is an increasing need for front offices to become more agile in order to comply with tough KYC, AML, suitability and cross-border rules. In middle offices, banking and asset-management product areas are becoming more complex, while back offices are being forced to standardise and industrialise.
Underpinning all this change is the reality that data management is becoming critical for enhanced business, control and conduct management.
Replacing legacy systems is no longer just about technology and costs; it is about supporting evolving business models while managing regulation and ensuring operational resilience and conduct risk.
Such profound change demands engagement from the executive suite – and success requires managing simultaneous business and technology transformation. Most C-levels know they need to lose the legacy but few know where to begin.
There are many options. It can be big bang – involving the total replacement of legacy systems in one go – or it can mean gradual modular change by operational function, business line or back office/front office. Systems can be in-house, best-of-breed or package solutions. The case for change, budget caps and the size of an organisation all influence the way to go.
A clear understanding of where the business wants to be post-change means it can map out how to get there. Is a faster route to new markets and segments a priority? Is it about smarter compliance? Is the aim to reduce costs of IT maintenance? Increased operational excellence and efficiencies? Perhaps it’s to provide more customer-centric service with better customer journeys and closer relationships? Most likely, it’s a combination.
Once goals and priorities are confirmed, wealth managers must ensure there is a solid case for return on investment. This might involve examining the expected savings from investing in compliance software or looking at projected increased revenues from having better data analytics to make cross-selling and up-selling easier. This will inform the scope, overall budget and timescale of the project and provide the basis for the business case.
Understanding your organisation and what skills and capabilities are needed to get the job done is the next priority. Experts can play a crucial role – they will have successfully delivered transformations multiple times and can help with practical issues, such as whether to take a big bang or modular transformation approach.
Look also at the existing pain points within the processes you want to improve. Again, external experts can help because they have dealt with similar issues elsewhere. A formal RFP process with clear end goals, budget and timeframe is the logical next steps.
This done, you should have a clear idea of the extent of the planned change and can start looking at how costs can now be reduced and restructured. Consider how traditional on-premise deployment of IT can be complemented, as needed, by cloud-enabled software as a service or business process as a service. Furthermore, new implementation approaches – such as Agile, remote delivery and automated testing – could be employed to achieve results in a cost-effective way.
The danger at this stage and throughout the journey is the constant risk of scope creep, which explodes budgets and timelines and causes unnecessary disruption. It’s vital to stick to the aims stated in the original business case and revisit as often as possible to ensure the outcome is still in-line with the initial goals. If you keep moving the goalposts, you’ll never hit your target. It’s worth taking time because the decisions made now may have an impact even 15 years down the line. Check the chosen path fulfils the original business case and goals, and ensure there is a future-proof roadmap of upgrades that will allow you to adapt to market changes and continue to grow your business.
Once you’ve made a decision, it’s important to commit fully to minimise the risk of project creep and ensure the undertaking maintains momentum. Transformation, whether modular or big bang, is hard work and needs strong leadership.
Buy-in by management and staff is critical to success and good communication is vital to achieving it. Once the decision has been made, a clear communications strategy should be drawn up and managed throughout the project.
It’s a sensitive topic for staff, clients and investors. For staff, there are the inevitable worries about job changes and security. Clients may worry that products and services they’re used to will disappear or cost significantly more. Investors will want to know the return and risks involved. It’s important to make sure that each stakeholder group is told what they need to know at the right time.
Explain that the changes are necessary to stay competitive and set out the benefits for them – staff stuck on repetitive jobs might get more time for value-added tasks; clients will have more access to real-time transactions and a wider array of products and services. Overall response time from the organisation may be drastically improved.
Finally, recognise that the transformation journey doesn’t end once the new technology has gone live. If you’re to avoid the risk of creating a new legacy system, it will have to evolve over time. This means regular investment to ensure it will sustain the business for the long haul.
Losing the legacy is a challenge. Success comes from defining the right priorities and combination of technologies, managing the journey, understanding the impact on the business operating and organisational models, and managing the commercial and operational risks.