Giants are moving toward platform-level integrated solutions but specialists with the right partners still have a captive $1 trillion market. Compatibility is the key.
Trust accounting has never been a hotbed of innovation, says Will Trout, head of wealth management research at Celent, the global information technology arm of Oliver Wyman.
But while he jokingly calls the category “a technology boneyard,” change is coming in a big way.
Advisor-facing systems are hot under the recent investment rubric of “fintech.” Trust accounting platforms have been slower off the mark for a variety of reasons, Trout explains.
First, they serve a small and slow-growing segment of the wealth management industry, representing only about $1 trillion out of the total $20 trillion U.S. wealth management industry.
Second, today’s trust clients are mostly older people, used to white-glove human attention from their advisors, who are, themselves, largely getting on in years.
As a result, the trust end of the wealth management industry has yet to adopt many of the robo and machine-learning assisted technologies that have upended financial planning.
You can compare the leading platforms at a glance — including an in-depth review of their capabilities and services — when you download our free white paper, “2018 America’s Best Trust Technology Buyers Guide.”
Trout says incremental changes are coming as once-isolated industry silos converge.
“Firms are developing trust software platforms that can serve RIAs in addition to bank trust companies,” he explains. “That means providing robust technology interfaces, including both advisor and end user portals, paperless onboarding, real time reporting and risk management.”
The movement towards a fiduciary standard across the industry — with or without the DOL rule — has hastened a trend towards channel-agnostic solutions with truly open investment architecture.
“By going to an open architecture product platform, the advisor and by extension the client can select the best products and services for them and then manage them in a tax aware and socially aware way.”
Integration starts at the top
Relative giants like Envestnet and SEI (SWP) have collapsed multiple product lines and their associated technology underpinnings into a coherent whole that still supports client segmentation but makes it trivial to expand the business — new geographies, client groups and product offering.
The unified platform also contributes to a better experience at the advisor level. Removing administrative hoops and duplication of signatures has made it easier to enroll clients into new accounts, according to advisors Trout speaks with.
Consolidation of multiple platforms also empowers the advisor by eliminating the need for multiple log ins and enabling the use of a single set of tools (e.g., for tax management) across products.
Advisors can now tag and group portfolios within different accounts to a single goal, and then trade and rebalance accordingly. Both the SEI and the Envestnet platforms do this.
The Envestnet single code approach and open API tools are available at banks looking to deliver a common experience across brokerage, advisory, trust and retirement. This is unique to Envestnet. The Envestnet approach and system features allow it to deliver a single chassis across the entire financial institution.
Platforms constructed on a single-code “chassis” provide the ability to deploy unlimited rules to automate workflow.
Also, for Envestnet itself, there is the benefit that enhancements to the code can be extended beyond the walls of any individual firm to all platform users; that is, these enhancements are highly scalable. We’ll talk more about what developments like these mean in the near future.
SEI sees the industry dialogue shifting from straight-through processing — here defined as the elimination of manual processes — to a focus on embedded data feeds.
Advantages of embedding the feed range from the elimination of subsystems around customer data to productivity gains from not having to manually track and log accounts. In effect, redundant keystrokes vanish.
The specialists fight back
For now, firms like Innovest, a leading provider of specialized financial technology solutions, are expanded their platforms through acquisition. In 2014, Invest acquired FinTech Securities to provide trade execution and clearing services for equities, fixed income and options.
Three years later, the purchase of PDS Companies (PDS) gave Innovest software and outsourcing capabilities including real property management, oil and gas trust accounting, pooled accounting and illiquid asset valuations.
Today Innovest has over $500 billion in AUA on its trust and wealth management platform, processes more than 6 million payments annually and provides fulfillment services for more than 10 million documents each year. FinTech Securities executes over 70 million equity shares annually.
Another specialized provider, HWA International, tailors systems to the needs of big and small clients alike with integrated trust accounting, CRM and workflow software based in the cloud.
Customization is the key here. Core HWA systems can be modified with over 35 additional modules and 19 standard interfaces as well as original customer-specific programming.
Trout believes real differences between the way that trust and brokerage assets must be managed will always make integrated systems a little awkward.
“Trusts require the principal and income accounting,” he explains. “Brokerage is in a transition from transaction-based business to fee-based or relationship-based model.”
“All of these solutions are fairly skin deep because once you go down into the systems you’ve got distinct regulatory and technology requirements that you cannot reconcile across the whole of the wealth management platform.”
Growth through partnership
For that reason, trust and accounting systems tend to add new capabilities on top of existing platforms, which may themselves be the result of a conglomeration of many different legacy systems.
“Rather than pulling out the plumbing and replacing it with modern technology, banks especially have acquired their competitors and their software,” Trout says. “So you have systems that don’t talk to each other, that don’t allow 360-degree review of the client.
Hence there’s a real desire and support from vendors to create platforms that view the client as a single relationship, not as a separate, atomized accounts.”
The robo revolution has not yet made inroads into the trust world, says Trout, though some systems now incorporate robo capabilities in the financial advice modules integrated into their trust platforms.
For the most part, vendors add these services through strategic alliances like FIS’ part ownership of digital advice provider trizec and the relationships FiServ and Pershing have with Marstone.
“Rather than build capabilities into the trust technology system and potentially gum up the works, providers are looking for ways to add features like paperless onboarding, real time reporting, digital advice and automated KYC through partnerships,” says Trout. “They’re not necessarily building it out of the core technology stack.”
“A trust agreement will never be fully automated because it’s cumbersome, but elements of it can be,” says Trout, pointing to FifthThird’s new LegacyLink which automates the estate planning process with interactive questionnaires and online tools. “This is not your grandfather’s trust platform.”
For more information about leading trust platforms — including an in-depth review of their capabilities and services — download our free white paper, “2018 America’s Best Trust Technology Buyers Guide.”
