Financial services companies continue to increase their technology spending despite rocky markets and an anemic economy.
For instance, Raymond James Financial Services Inc. will increase its technology spending well in excess of its 11% increase of 2008, said Michael Shelly, the St. Petersburg, Fla., firm's vice president of business technology management.
"I had a $120 million budget last year; Merrill [Lynch & Co. Inc. of New York] spent a billion. It's all about the prioritization process. No one has a blank check anymore," Mr. Shelly said.
The focus is on persuading 1,000 reps and advisers to begin using the Microsoft Dynamics-based customer relationship management system.
To be sure, the independent-contractor broker-dealer subsidiary of Raymond James Financial Inc. isn't alone in increasing its spending.
"We're planning to spend about 15% more than last year on technology," said Ryan Reineke, vice president of technology at Cambridge Investment Research Inc., a Fairfield, Iowa-based independent broker-dealer that supports around 1,400 advisers. "We're in growth mode, and our plan is that we're full steam ahead and not scaling back on any projects, despite the market conditions."
The firm's focus will be on the infrastructure needed to support more advisers and includes re-designing the firm's imaging and work flow systems. Not to be left out, custodians plan to increase their technology spending as well.
"We are projecting $35 million to $40 million of new-technology spending," said Edward O'Brien, senior vice president of Fidelity Institutional Wealth Services, the business unit of Boston-based
Fidelity Investments that serves financial advisers. "That's consistent with what we've been spending the last few years."
The budget enables the firm to continue to roll out its WealthCentral platform, which combines portfolio management services, CRM and financial planning.
In addition, iNautix USA is not planning to reduce its technology budget in 2009, said Jagdish Rangwani, chief operating officer at the affiliate of Pershing LLC. Both firms are based in Jersey City, N.J.
"Over the last couple of months, we've been spending more money to make sure we have enough capacity to deal with the volumes created by market conditions, and we expect that spending to continue into next year," he said.
A Pershing spokesman declined to discuss the parent firm's technology spending plans.
Charles Schwab & Co. Inc.'s plan is to fund improvements to eTelligent Consulting Inc. of Overland Park, Kan., so the firm has the technology necessary to support the breakaway brokers it attracts, said Dan Skiles, vice president of technology for Schwab Institutional of San Francisco. Schwab's eTelligent unit provides consulting and back-office support.
Spending to attract breakaway advisers is inevitable, though wirehouses and other sectors of the financial business will spend less on technology or shift spending — especially in the wake of the consolidations, said Alois Pirker, senior wealth management analyst for Boston-based consultant Aite Group LLC.
"A lot of firms are going to have to go back to the drawing board — all the mergers and acquisitions and need for integration of systems change the priorities and [many of] those costs haven't been figured in yet," he said. "The budgets are a moving target here."
Among the dozen advisory firms queried for this story, technology spending was projected to range from 1% to 7% of gross revenue for the coming year; on average, firms will spend 5% of gross revenue.
"A lot of our costs are fixed, but technology is definitely one of the areas I went back and thought hard about in terms of cuts," said Dan Dubay, managing principal with PPA Investments Inc., a wealth management firm in Roswell, Ga., with $700 million in assets under management.
"We spend $50,000 a year on outside technology consulting, and we are going to have to keep that up," he said, adding that he plans to buy a $7,000 server.
On the other hand, he decided that the firm could live without some of the "nice-to-have" technology it uses, such as the $15,000 it spent this year on Styleadvisor Manager Analysis software from Zephyr Associates Inc. of Lake Tahoe, Nev. The plan is to cut the software from the budget next year.
Other firms plan to improve efficiency and to outsource some aspects of their business.
"We'll probably spend $50,000, or about 7% of our gross revenue, next year between hiring an outside technology consultant, moving to [San Francisco-based Salesforce.com's CRM system] and outsourcing our servers," said Sheila M. Chesney, principal with Chesney & Co. in Sheldon, S.C.
The four-person firm manages $75 million in assets, with technology spending devoted to making it more efficient without having to add employees. She said the firm already did this by using an outsourced bookkeeper, an outside client services administrator and an e-mail management firm.
At Friedman & Associates, funds will be spent on portfolio rebalancing solutions and for the use of its CRM system, said Greg Friedman, owner of the Novato, Calif., firm, which manages $234 million in assets.
"We typically spend 5% to 7% of revenue on direct technology expenses and will continue to do so — we don't see this as an expense but rather an investment," he said.
E-mail Davis D. Janowski at [email protected].
