As Clientele Grow, LatAm Wealth Managers See Tech Chasing Behind

Marcelo Fava, Ernst & Young

Ernst & Young’s second survey of wealth managers found that firms in the region are far more likely to use proprietary solutions and a pooled organizational approach than their counterparts—even, in some cases, within the same global firm—to the North. A wave of new clients is lining up outside the door, and limited scale is becoming less of an issue as new product offerings are introduced. For technology providers, that should be a huge wake-up call.

The study queried 30 firms in North America, seven in Brazil and three in Mexico. Overall, the two sets of firms are working on the same set of priorities, only with the Latin American further back on the curve. "In general, the market is at a different stage of evolution. Though Latin American firms have been traditionally limited by the market's size, socioeconomic change the region is experiencing represents a significant opportunity for wealth managers," says Marcelo Fava, a partner with Ernst & Young who co-penned the survey.

New Segments

Specifically, Fava notes, that means more high- and ultra-high net-worth clients, but a still greater jump in mass market and core affluence business after seven years of uninterrupted economic growth. "What's changed is the difference of client segments, and greater targeting with customized products and services. Unlike in the past, these are now equal in Latin America today to those in the US and Europe," he says.

Those services fall into three types: transactional, fee-based advisory for multi-asset class investment, and lending and credit. Fava says technologies tackling the middle category are primed for far greater attention, as reflected in the survey's comparative responses around the origin of wealth managers' applications.

Latin American portfolio management, cash management, and, to a slightly lesser extent, trade order management and accounting, are developed in-house far more frequently than in North America, where there is a far more distributed spread across software packages, application service providers (ASPs), and outsourcing offerings.

"Even firms that are part of larger global institutions face challenges [of economic feasibility and location requirements]," Fava continues. "They struggle to develop strong business cases that warrant the deployment of global solutions in to their markets.

"Fee-based offerings are not as popular yet in the region, and on both a business and technology level, we believe that's an area of tremendous opportunity," he says. "Obviously, there are tools in the US and Europe already to help wealth managers construct those more complex portfolios, reduce total cost of ownership, and provide more scale. Wealth management is a face-to-face business, so above all, the technology can advantage advisors as they're out there, looking to demonstrate value-add to new clients."

You see global financial institutions diversifying their book of business, while others like Bär—a true industry player that basically built private banking—all trying to enter the region. Once the products are there, the platforms have to follow.

Acquisition activity in the region signals a strong future, as well. Bank of America's sale of its wealth management business last year to Julius Bär, and Chile's Grupo Security buying up Grupo Angelini's Cruz del Sur are two varied examples, with the stable political environments in Uruguay and Colombia, and stronger Mexican financial infrastructure and proximity to the US, also proving attractive. "You see global financial institutions diversifying their book of business, while others like Bär—a true industry player that basically built private banking—all trying to enter the region. Once the products are there, the platforms have to follow," Fava says.

Out of that, Fava anticipates more dedicated IT capacity for wealth management, too. The survey found, for example, that a full two-thirds of Latin American managers work with pooled technology resources—e.g., shared among retail, insurance, or institutional asset managers—while 11 percent have dedicated personnel, with remainder using a hybrid structure. In North America, by contrast, the pooled model is more than halved, at 32 percent, with hybrid taking 44 percent, and dedicated teams 24 percent. The gaps will eventually narrow.

"That will take longer to materialize than software offerings," he says. “But around 90 percent of firms we talked to are planning to expand advisory headcount in the next few years. There is a lot of energy around this."

Bottom Line

  • Latin American wealth managers remain behind their North American counterparts in their implementation of externally provided applications. That is in part due to their limited scale, which is slowly falling away, but vendors can also do better to provide value-add at cost, particularly in fee-based portfolio management.
  • Wealth managers' IT support in the region is also far more likely to be built into a shared services, rather than dedicated or hybrid model. However, acquisition activity and new entrants in the space should eventually spur change in that space, as well.


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