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Tech Spending on the Wane

Firms stanch spending on new initiatives--and reps feel it.

Technology spending is dropping at securities firms, and some reps are starting to feel the pinch.

“We haven't bought a computer or replaced a computer in three or four years,” says one Raymond James rep. He says that his outdated hardware is keeping him from using the latest software that his firm makes available to its reps. “You hear rumors that they're going to start [upgrading] — but then I heard those same rumors a year and a half ago.”

Such statements come as no surprise to researchers at Celent Communications. According to a recent Celent study, IT Spending Trends in the U.S. Securities Industry, the ever-growing tech budgets of a few years ago have leveled off; most available monies, in fact, now are flowing toward maintenance and infrastructure projects.

Celent expects tech spending by securities firms to amount to $25.6 billion this year — a 1 percent drop from 2002 levels. Spending on new-product initiatives, however, has dropped far more precipitously — by 30 percent from 2002 levels to $7 billion in 2003 — and is unlikely to bounce back any time soon.

Octavio Marenzi, author of the Celent report, says there are some interesting trends buried in the numbers including the increased use of outsourcing. The amount of money securities firms spend in 2004 on “external” technology is expected to rise to $15 billion, from $13 billion last year. Meanwhile, “internal” spending is expected to decrease from $12.5 billion in 2002 to just over $11 billion by 2004.

Another interesting subtext to the numbers: Wirehouse brokers seem to be suffering from tech cuts more than independents.

“Historically, captive brokers have had better technology than independent brokers. Today, they're about equal,” says Chip Roame, managing principal of Tiburon Strategic Advisors. He noted that the continued drain on wirehouse tech resources could even give independents a leg up in the years ahead.

In the meantime, brokers of all stripes could take time during the spending slowdown to figure out how to most effectively utilize the technology already in place: As much our Raymond James broker yearns for a hardware upgrade, he, for one, admits that there's a lot of technology already on his desktop that he has yet to use.

“There's so much software, hardware has to be added to handle it,” he says. “On the other hand, I don't want to have a hundred thousand things that I can access that I never use.

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