July 17, 2012 - Regardless of size, the most widely cited response to the question of whether a fund firm will cut spending on technology this year is: We won't.
In a deeper look at how spending by asset management firms is shaping up the top response by firms is that they will not cut their investing in current and new technologies.
The initial responses to the 2012 Money Management Executive Technology Survey, sponsored by J.P. Morgan Worldwide Securities Services, were published at the end of June (read: "Fund Managers Start to Like Social Communications").
All told, 179 responses were received to the survey and are broken down into three slices: asset firms with $5 billion or less of assets under management, those with $5 billion to $100 billion under management and those with more than $100 billion.
Most notably, 38% of executives and managers at firms with $5 billion or less of assets under management said they would not cut spending.
Similarly, 32% of executives and managers at the largest firms, those with more than $100 billion in assets, said they planned no overall spending cut.
The result was less emphatic with mid-sized firms. Only 20% of executives and managers at firms with between $5 billion and $100 million under management said spending on technology would not be cut.
But that was, by far, the top response on cost-cutting plans, even by that swath of fund firm.
Firms of all sizes said they would try to cut costs a place invisible to customers: the back office.
Fourteen percent of the smallest fund firms and 13% of the mid-sized and large firms said the area where the most cost-cutting would take place would be back office and administrative services.
Invisibility isn't the only driver however. "The most important initiative this year is to make the organization a paperless organization,'' said a customer service director at a hedge fund company in New York. "It is a part of our commitment toward environmental conservation.''
Other areas of significant cost-cutting for firms with under $5 billion of assets under management: Operating system upgrades (14%), order and execution management systems (11%) and proxy solicitation and electronic voting systems (11%).
Areas facing the knife for mid-sized firms: Portfolio management systems (13%), systems integration (also 13%) and cost-basis reporting systems (12%).
Firms with more than $100 billion in assets under management are nipping and tucking across the board. Most notable: Mobility is already under the gun. Nine percent of respondents indicated their firms had targeted mobile computing for spending cuts.
This sticks out because, across the board, spending is picking up the most for devices that will expand the mobility of fund firms' operations.
Fully 49% of firms with $5 billion or fewer of assets report that they are adopting iPads and tablet computers for the first time. Another 15% are adopting iPhones and similar smart phones for the fist time.
The numbers are slightly different for mid-sized and larger firms. In those two categories, averaged out, 37% are adopting iPads and tablet computers for the first time; and, 25% are adopting iPhones and smart phones for the first time.
These investments are being made to increase the productivity of staffs, particularly those out in the field. And to create a competitive advantage.
His firm is "encouraging the use of advance mobile devices to achieve maximum business advantage over rivals,'' said a marketing director at a fund operation in Austin, Texas.
But they also reflect a mass movement into the use of social media by fund firms, for interacting with their customers.
Large firms are moving fastest. Executives and managers at 57% of firms with more than $100 billion in assets say they are starting to communicate through LinkedIn, Facebook, Twitter and such sites, for the first time.
The same goes for 50% of firms with $5 billion to $100 billion of assets under management. Picking up social media slightly less quickly are the smallest firms. In fund organizations with under $5 billion of assets, 44% are adopting social communications channels for the first time.
Those firms, in fact, are spending big on customer interaction software of all types. The other big area: customer relationship management software, which 25% of the small firms said they were implementing for the first time.
And, when ranked as an overall spending object, customer relationship management software was the second highest priority of small firms, with 33% ranking it among their five top spending priorities. Mid-sized firms also ranked it highly, with 28% putting it in their top five. Only large firms had moved on to other priorities, with 17% putting it in their top five.
For the biggest firms, risk management is now top of mind. As rules are beginning to be defined and then implemented coming out of the 2010 Dodd-Frank Wall Street Refrom Act and other global financial reform efforts, risk management software is now their top spending priority. Thirty-four percent of firms with more than $100 billion in assets put risk management software in their top 5 spending priorities. That ranked managing risk as the number 1 priority, overall.
Also top priorities for the biggest firms: systems integration (30%), back office systems (23%), market data processing (21%) and, surprise, mobile computing (19%).
Top priorities for the mid-sized firms: Back office systems (30%), CRM (28%), fund accounting software (22%), operating system upgrades (22%), systems integration and replacement (20%).
For the smallest firms, the top 5 priorities are: back office systems (35%), CRM (33%), mobile computing (28%), operating system upgrades (24%) and sales management software (22%).
The survey showed a large disparity between big firms and small firms in how they intended to conserve expenditures.
Figuring out how to split computing activities across existing servers and networks, creating many 'virtual' devices and channels on existing physical ones, was the big object of small firms. Virtualization of storage systems is a top cost-cutting mechanism for 47% of executives and managers in fund firms with fewer than $5 billion assets. Virtualization of servers is a priority of another 42 %.
By contrast, the biggest cost-saving moves by mid-sized firms will be consolidating vendors, at 44%.
The big firms? One-fourth plan to consolidate or renegotiate with vendors. Another 22% plan to cut staff. And 19% plan to cut the types of hardware in use.
This story originally appeared at Securities Technology Monitor.
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