On the surface, TowerGroup’s 10th annual financial services technology conference was all about tangible ways banks and brokerages can improve their business.
Dozens of analysts held forth on subjects ranging from the projected growth of separately managed accounts to the computer-system silos that keep financial firms from integrating their products and services more effectively.
But one intangible issue lurked just beneath every speaker’s words: trust.
“Five years ago, we [the industry] wouldn’t have been talking about trust, but we got complacent and took our eye off the ball,” said David Spina, CEO of State Street, in the conference’s keynote address.
He then highlighted the potential irony of the conference’s information-technology focus, saying, “We trust the tech and the operations, just not the humans and corporations that run them.”
Still, it wasn’t as if the technology went neglected at the show. After years of shrinking technology budgets, firms are starting to loosen their grip on tech dollars. Given the painful lessons about overspending many firms learned during the boom years, they are likely to be hypercautious in the way they deploy tech dollars.
Given this, TowerGroup predicts that IT departments will be increasingly involved in crucial long-term business decisions, with chief information officers reporting directly, in some cases, to the heads of the various business departments at the firms.
According to Dushyant Shahrawat, a senior analyst in the securities and capital markets division at TowerGroup, firms currently spend 75 percent of their IT budgets on maintenance of current programs.
The total projected spending for the industry in 2004 is roughly $5 billion—much of which will be spent just to keep the basic infrastructures running smoothly.
For an industry that prides itself as innovative, says Shahrawat, this is a decidedly cautious position in regards to new development.
To illustrate his point that financial services is not the leader in IT development it pretends to be, Shahrawat says “that for about $10, Federal Express—which handles hundreds of millions of deliveries every day—can send a package anywhere in the world and track its movements at any moment in time,” a capability that he says, for institutional trades, costs 7 times that amount.
Innovation and technological improvements will be realized slowly, TowerGroup predicts. The days of massive capital outlays on projects like the Merrill installation of Thomson ONE workstations in 2003 are probably gone for now.
Dennis Ceru, the director of retail brokerage and investing at TowerGroup estimates a mere 4.7 percent compound annual growth rate in IT spending for U.S. retail brokerage over the next five years. Factoring in a 2 percent inflation rate, one can assume “firms will not be seeking to reinvent the brokerage wheel through IT,” says Ceru, who predicts firms to tackle short-term tactical projects of 18 months or less instead.
In the immediate future, the conference’s speakers said, the industry should give its full attention to regaining investor trust—a project with an undeniable cost/benefit ratio.
Technology may provide advisors with a clear picture of a client’s relationship with the firm, but absent a strong trust in the advisor and the firm, such information is close to worthless.