New report from Everest Group examines how IT investment priorities in Capital Markets industry will vary by line of business and health of organization post-pandemic.
The capital markets industry will be under stress in 2020 as the ongoing COVID-19 global health crisis adds cost and profitability pressures. Growing regulatory requirements and changing customer demand themes will lead to a further decline. As a result, Everest Group predicts that the spend on IT services in the capital markets industry will decline 2.1% in 2020, with outsourcing spend seeing a dip of -3.7% as firms reallocate resources and cost transformation initiatives are prioritized.
Learning from and looking beyond the pandemic, capital market firms are focusing IT spend on resiliency of systems, revitalizing core to drive growth, and undertaking cost control measures. Specific IT spend priorities vary by line of business. Three examples follow:
- Asset management firms are investing in cloud and platforms to keep overall expenses down and make up for lower fees.
- Vanguard, for example, migrated monolithic applications away from managed data centers to Amazon Web Services. The firm has been able to reduce the cost of compute by at least 30% and also reduce time to market by building and deploying software faster.
- Fidelity leveraged a cloud foundry platform-as-a-Service to further develop its agile software delivery strategy. Fidelity teams used automated Continuous Integration/Continuous Deployment (CI/CD) pipelines extensively and were able to reduce the time to market for several new low-commission products designed for the mass affluent customer segment.
- Madison Investment Advisors chose a Charles River enterprise platform to replace multiple, disparate systems running across the business. The platform enables Madison to have integrated data, analytics and benchmarks across global equities, mutual funds, options and fixed income, with comprehensive compliance monitoring across the entire investment process.
- Wealth management firms are investing in new channels to adapt to increasing regulations, shrinking margins and an evolving investor demographic. As aging investors are being replaced by Millennials and Gen Zs, asset and wealth managers are adapting to new-age investors who generally prefer using hybrid advisory services, value socially responsible investing, expect fee transparency and demand personalized experiences. In response, asset and wealth management firms are establishing new technology priorities, such as:
- Using machine learning, artificial intelligence and analytics for better assessment of portfolios
- Accelerating the use of digital channels and robo-advisors
- Adopting agile development models to be more responsive to customer needs
- Managing compliance and security considerations via private cloud
- Using virtual tools for customer interaction management
- Using Distributed Ledger Technology to improve efficiency and transparency
- Pension funds have high exposure to market volatility and are currently experiencing a rise in withdrawal requests from pension holders to withstand the economic shock of the pandemic and recession. Pension funds are increasing their investments in big data and analytics for portfolio analysis, correlations, risk management and long-term cash flow projections. They are also investing in robust fraud detection mechanisms to minimize data breaches.
These findings are discussed in more detail in Everest Group’s recently published report “Capital Markets State of the Market Report 2020: Automation, Data, and Cloud Trends for Buy-side Firms.” The report includes a detailed analysis of the buy-side firms in the capital markets industry, analyzing the forces shaping the industry’s future, especially in the light of the COVID-19 pandemic.
“As capital market firms strive to recover from the COVID-19 pandemic, we’ll see them take one of four different approaches to their IT investments, depending upon how deeply they were impacted by the crisis,” explained Ronak Doshi, vice president of Everest Group. “Those most heavily impacted by the pandemic will be forced to either modernize quickly, tapping the resources of third-party platforms and service providers, or pursue aggressive cost take out, possibly even selling off legacy platforms to vendors.
“Among those more fortunate firms that are only moderately impacted by the pandemic, we’ll see some invest in longer-term transformation, taking the time to go for best-of-breed or custom solutions. Those firms with the healthiest balance sheets will pursue aggressive growth strategies, correspondingly focusing their IT spend on customer experience, the agility to rapidly launch new products, and scaling operations in the face of mergers and acquisitions.”
About Everest Group
Everest Group is a consulting and research firm focused on strategic IT, business services, engineering services, and sourcing. Our clients include leading global enterprises, service providers, and investors. Through our research-informed insights and deep experience, we guide clients in their journeys to achieve heightened operational and financial performance, accelerated value delivery, and high-impact business outcomes. Details and in-depth content are available at http://www.everestgrp.com/.