Thursday, January 27, 2011

wealth management is not technology intensive

(Blog post)

 

In terms of technology sophistication and criticality, trading is way ahead of investment banking, portfolio management, wealth management, private banking, and traditional banking sectors such as loans, cards and trade financing.

 

(Incidentally, I think profit margin follows a similar pattern. Trading, investment banking and fund management including private equity have higher margins. Note these are entirely institutional. Nothing on the retail side is comparable margin-wise, but high net worth wealth management still offers higher margin than other retail businesses.)

 

Back to technology, investment banking (M&A, fund raising…) and fund management have far lower trading volumes (unless a hedge fund engages in HFT). They generate big profits not through technology but other means. Hiring managers in IB and asset management undoubtedly claim technology is critical but it’s not as critical as in trading.

 

One of the smartest colleagues in GS wealth management IT once asked in a town hall whether technology is a competitive advantage in the private wealth business. He was asking the business representatives on the stage. I remember answer was vague. Business said the most important feature they are still praying for is quick retrieval of any client’s full portfolio and its current market value on demand. Note there are (up to) millions of clients in UBS and each client could have hundreds (if not thousands) of positions held in their private accounts, and these positions could change any time as clients trade.

 

Nevertheless, these challenges pale against the technical challenges in high-volume electronic trading. Within the trading space, FI and commodities are behind eq and FX, except interest rate futures. Equity has the reputation of leading-edge technology.

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http://www.linkedin.com/in/tanbin