Aite-Novarica Group’s vendor community estimates current RIA market adoption of sophisticated portfolio management and reporting systems at around 40% to 60%. Therefore, of the estimated 23,500 RIAs in the market, 9,000 to 14,000 still use very basic tools. This represents US$1.2 to US$1.3 trillion—a substantial market opportunity.

Here are six of the top trends among the vendor market for portfolio management and reporting systems.

1. The RIA and the independent advisor, in particular, became the primary distribution channel for much of the financial advice Americans received in 2022

This trend will only increase, and integrating nontraditional elements of an individual’s financial life into traditional client reporting is a top-of-mind priority for RIAs. Moving past investment management into other elements of an individual’s financial life, it will become more feasible and necessary for all RIAs to integrate insurance (in-force illustrations); environmental, social, and governmental (ESG) impacts; legacy planning; and more into reporting.

2. Wirehouses are expanding broker-workstation capabilities with custom-made vendor solutions

Broker workstations are evolving and, in some cases, deploying vendor technology. Workstation development was historically a proprietary effort except for large-scale infrastructure initiatives. Fintech firms are also tactically expanding their presence into the wirehouse channel. For example, Morgan Stanley, RBC, and UBS use Addepar for their advisors with an ultra-high-net-worth (UHNW) clientele. Envestnet Tamarac is used by Merrill Private Wealth Management teams for its portfolio management and reporting solutions, helping them address clients with complex financial needs. Broadridge’s strategic partnership with UBS to overhaul its financial advisor workstation comprises a suite of front-to-back component solutions designed to drive advisor revenue and productivity, personalize the investor experience, digitize enterprise operations, and deliver cost efficiencies.

3. Wealth managers merge channels to serve clients across their life spans and turn toward Gen Zers and millennials as wealth transfer accelerates

RIAs’ need to cater to individuals across all wealth cohorts almost dictates their requirement to have a highly tailored, personalized service model. Appropriate engagement with portfolio management and reporting software is therefore vital to service all these individuals in a manner that makes it easy to make investment decisions, interpret statements, and so forth.

4. Integrated regulatory and compliance solutions have become table stakes to scale business models

All financial institutions (FIs) will ultimately need to cope with increasing amounts of regulatory data in a variety of formats. This is an extremely positive development, as wealth managers continue to juggle regulations. In fact, the dynamic and evolving nature of regulations is a key driver for all FIs to adopt client reporting systems that can help support compliance efforts.

5. Economics and functional commoditization are driving provider value migration toward enhanced RIA services

Vendors seek to grow their value proposition with enhanced RIA services, including digital client onboarding, rebalancing/trading, financial planning capabilities, practice management, and business intelligence leveraging data capabilities. RIA practice management solutions were historically part of the custodial and aggregator value propositions. That is now shifting toward technology providers. Envestnet has been particularly strategic and aggressive with its partnerships and acquisitions as of late to open its ecosystem for expansion. As recently as October 2022, Envestnet entered into a strategic partnership with FNZ, a New Zealand-based custodian and wealth tech firm with over US$1.5 trillion under administration.

6. Vendors are competing against each other in a race to solve the most elusive integration hurdles. The API-ification of wealth management will help

A central pain point for advisors is getting accurate performance data—particularly for alternatives—correctly calculated and integrated into their technology stacks. APIs provide firms with the runway to customize their offerings and innovate fast, using data-rich building blocks. Cloud-native firms, such as InvestCloud and Addepar are raising the bar in providing complete portfolio management and reporting to wealth managers. Client reporting vendors are increasingly focused on this point and have developed well-thought-out open API frameworks to facilitate the creation of a vibrant ecosystem of third-party applications, which also increases the attractiveness of their own platforms to RIAs.

If you’d like to discuss these key findings for the changing environment for portfolio management and client reporting vendors, please read our new reports Aite Matrix: RIA Portfolio Management and Reporting Systems and RIA Portfolio Management and Reporting Systems Market Overview or contact me here to continue the dialogue.

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At the time, I noted that the diligent, bottom-up methodology underpinning Refinitiv’s country sustainable development goals (SDG) scores would help unleash a new level of environmental, social, and governance (ESG) data clarity and standardization across the industry—a clear win for investors and their financial advisors keen to integrate ESG factors into investment selection.

I remember looking at the rankings for different countries I was interested in and noting that Japan was, at the time, high up on the list at #19 out of 201 nations. I was somewhat surprised by this—particularly for a country that, for as long as I can remember, has been one of the largest CO2-emitting countries in the world.

On the other hand, Japanese multinational Panasonic has recently made remarkable environmental strides in its quest to become more environmentally friendly by reining in dependence on expensive cobalt batteries, thereby reducing the price of electric vehicles. I raise this simple example to illustrate that there is no black and white when it comes to SDG scoring. While current ESG politicization presents challenges to stakeholders up and down the value chain, opportunities are presenting themselves in spirited fashion across the globe.

Therefore, Japan’s recent announcement on published draft guidelines that mandate ESG disclosures for public companies caught my attention. I immediately started to think about how Aite-Novarica Group’s financial institution partners in Japan will need to cope and adapt in short order, as this new mandate goes into effect after March 31 (when companies in Japan end their fiscal year) and will impact reporting beginning in June. Following are some other key implications.

Implications for Japanese Financial Institutions

For asset managers, it clearly means ESG factors will be considered for security selection. For the wealth management industry, if the rest of the world is any indicator, the sector can expect several key reactions, including increased focus on product strategy, private client onboarding, portfolio construction, data analytics, and impact reporting.

Japanese wealth practices, like their global peers, have a long list of technology improvements that must be addressed, including upgrades to digital engagement, digital communication, client reporting, customer relationship management, and financial planning platforms. While each firm has its priorities, with this new regulation, Japanese firms now need to take a stance in technology initiatives related to ESG.

I predict that Japanese wealth managers will need to increase their focus on embedding sustainability data and metrics into their investment portfolios and on training their financial advisors to become more in tune with sustainable investing. Financial advisors and wealth tech platforms will need to become intimately familiar with their clients’ values and personal beliefs. The ability to communicate and report the financial and nonfinancial impacts of their investments is vital as well. Not doing either will needlessly put the client relationship at risk, leaving it vulnerable to attrition. The competition is quite fierce, and financial institutions will poach clients that don’t have the needed impact reporting capabilities.

ESG data will become more prominent on Japanese advisors’ workstations, tighter consolidation of ESG factors into investment selection will take place, and financial advisors will need to be trained to learn about the U.N.’s SDG goals to use and apply the data appropriately to clients’ decision-making. Indifference or ambivalent attitudes toward issues such as climate change/carbon emissions, sustainable natural resources/agriculture, and corporate board issues won’t be received well by certain emerging private client segments.

Additional Information and Contact Details

We are excited to collaborate with our partners in Japan and across the globe on this sector. Should you wish to learn more about this sector, key trends, and how ESG is finding its way into the hearts and minds of wealth managers and financial advisors across the globe, read Aite-Novarica Group’s reports: ESG Data Market Dynamics Within Wealth Management and Dawn of a New Era: ESG Integration Into Wealth Management or contact me directly at wokby@datos-insights.com.

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While FIs of different sizes have varying challenges, at a bare minimum, all wealth management firms should be powered by a solid, data-backed foundation that feeds into a customer-friendly digital platform. These platforms are designed to help firms’ human advisors offer the most value possible, not replace their expertise.

Certain functions are table stakes for a core banking system: accounts and deposits, credit and lending, customer management, payments, and a system of records. But these basics aren’t enough to keep up with the evolving needs of clients. Modern systems are offering FIs increased customization options; they are often built on a microservices-based architecture and a cloud-native solution.

Key Considerations for Core Platform Vendors

Many wealth managers these days use their core banking vendor as their primary technology partner for best-of-breed middle-and-front office wealth-tech modules in addition to back-office capabilities. New platforms, implementation offerings, and capabilities are helping FIs upgrade their systems more easily than in years past.

Vendors in this market are increasingly decoupling their wealth platforms from their core software options and offering them as stand-alone products. This enables FIs to use these solutions as needed and to integrate them with other core systems they may be using. Decoupling wealth solutions from their core system offerings also allows vendors to stay competitive and provide faster implementations.

Modern core banking system vendors also have a wide variety of deployment options: on-premises, hosted, and cloud. Wealth management firms still largely prefer on-premises deployment, but cloud deployment has been gaining momentum in recent years.

In addition to decoupling systems and increasing their deployment offerings, core private banking vendors should keep the following in mind:

• Any core system must support their clients’ expanding models to include capabilities such as a spectrum of environmental, social, and governance (ESG) capabilities; private market investments; and digital assets.
• Wealth managers are navigating the world of regulations at the local and global level alike.
• Scalability and flexibility of offering are paramount. While certain core banking vendors are leading the way, others have to adapt quickly to wealth managers’ need to serve new and varied client segments at speed as new demands are being placed by shareholders, regulators, and private clients.
• The front-end digital wealth functionalities offered by core banking vendors play significantly into wealth managers’ choice of technology firm, thus evolving these functionalities is essential.

Evolving Options for Wealth Managers

Core banking vendors working with private banks and wealth managers in Europe and Asia are facing another challenge. Technology solutions owned by banks, such as Azqore (subsidiary of Indosuez Wealth Management) and G2 (Lombard Odier’s banking platform), are being white-labeled for FIs in addition to business process outsourcing (BPO) services. The upside of these offerings for wealth managers is that these solutions are, in a sense, built for them by other wealth managers.

One key area where core banking vendors can show their value is through their partner ecosystems. Collaborating strategically with other vendors can boost the capabilities available to clients while helping them keep costs low. Marketplaces with a broad range of vendor partners can help FIs leverage modern capabilities while ensuring vendors have a broader reach.

Another way wealth managers are keeping up with modern client expectations is through the use of APIs. Better integrated tech stacks that rely on APIs can help firms stay innovative while customizing the customer experience. APIs also make it easier for FIs to partner with third-party partners such as fintech firms to monetize their data.

For more information about this sector, key trends, and how core banking vendors in this space are evolving their offerings, read Aite-Novarica Group’s recent report Aite Matrix: Wealth-Management-Focused Core Banking Systems in Europe and Asia or contacting me directly at wokby@datos-insights.com.

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