Wealth management to spend $24 billion on tech annually by 2023: Study
Priorities include digital onboarding, cybersecurity and biometric authentication
The COVID-19 pandemic is redefining the technology investment landscape for the long haul and wealth managers are expected to accelerate spending to reach approximately $24 billion annually by 2023, according to a Celent analysis published Wednesday.
The potential investment would be up from $21.4 billion that the industry is projected to spend on tech by the end of the year, according to the research.
As remote work has spurred wealth managers to prioritize resources that support digital capabilities focused on client engagement and protection, investments are expected to grow with a compound annual growth rate of 5% year over year until 2023.
Priority investments include digital onboarding, cybersecurity, robotic process automation, biometric authentication, virtual assistant chatbots and cloud migration, according to the study.
Yet, accelerated tech spending won’t kick in until mid-2021, Celent predicts, as firms are still recovering from decreased revenues this year. In fact, tech spending this year is expected to drop 3% to $21.4 billion as tech budgets are likely to stay on hold until the uncertainty surrounding the pandemic subsides.
Celent’s analysis is partly based on a March survey to CIOs, which aimed to uncover where resource allocation lies amid the pandemic. The analysis also incorporated macroeconomic forecasts and conclusions derived from historical precedents.
Once wealth managers are ready to invest in technology, resource allocation from 2022 through 2023 will be a result of firms realizing the returns from investments in digitization and automation — causing wealth managers to double-down on technology enhancements in a post-pandemic world.
“Prior accelerated investment stemming from COVID-19 will ultimately mean that firms will simply be maintaining these enhanced tools,” the report noted.
Wirehouses will continue to hold the largest piece of the IT spending pie at 37% of overall spending. Meanwhile, independents will account for 17% of overall IT spend in 2023, a 5.5% increase compared with 2020 with most spending going to external software.
Notably, growth of investment for external software and services is expected to account for more than half (58%) of total IT budgets by 2023. Firms are expected to leverage third-party vendors to increase digital onboarding, two-factor biometric authentication and digital ID verification, and investment in workflow and process optimization through AI and machine learning tools.
Wealth managers should continue to focus on bolstering remote collaboration tools, according to the Celent research, as demand for digital will continue to increase despite any return to normalcy.