Canadian Financial Services Firms Ramp Up Tech Investments

Most of Canada's largest financial services firms have and will continue to invest heavily in IT projects for the foreseeable future to garner more customers and stay ahead of the compliance and regulation curve.

According to a new study released this week by Boston-based research and consulting firm Aite Group, 53% of executives at 21 major Canadian asset-management firms said that increasing their focus on enterprise data management was either a "major" or "appreciable concern" and 29% of those surveyed indicated their IT priorities will be centered around improving transaction processing speed.

While many of their U.S. counterparts clamped down on spending of all types, including IT investments, throughout the economic malaise of the past three years, Canadian firms opened up their coffers -- 76% said they would complete "major" IT projects started during the downturn this years -- to upgrade systems used for trading, portfolio management, client relationship building and reporting.

Thanks in large part to tighter, government-mandated regulation and their historically conservative approach to long-term investing, Canadian asset managers emerged from the worldwide economic crisis relatively unscathed while a disturbing number of American banks, brokerages and other financial institutions either went belly up or were bailed out by the U.S. government.
 
"Canadian asset management firms have been able to capitalize on their ability to weather the financial crisis, investing in technology and infrastructure in anticipation of a global recovery and increasingly stringent regulatory environment," Aite Group senior analyst Denise Valentine said in the report. "2011 is off to a good start for technology vendors selling in Canada as Canadian asset managers continue improvements in overall architecture and applications."

That's not to say American hedge funds, pension management firms and garden-variety banks and brokerage firms are eschewing technology spending altogether. A number of firms have implemented new social media and interactive, web-based marketing systems to better grow and serve their client base.

But the report concludes that most are still playing catch-up to their Canadian rivals, most of which -- 93% -- are outsourcing critical IT projects to third-party vendors rather than trying to recreate the wheel on their own.

By category, Canadian asset management companies are placing most of their focus and IT budget on portfolio and trading systems (29% apiece), followed by reporting systems (19%) hardware upgrades (14%) and customer relationship management (CRM) system upgrades (also 14%).

The fact that so many firms have held back on IT spending while simultaneously paring headcount and consolidating business units has forced many third-party IT equipment and service vendors to lower their prices and water down their once daunting service contracts to attract new financial services clients.

"The need for greater end-to-end operations automation and even end-user pressure has inspired the IT project workload," the report said. "Canadian firms have no doubt benefitted, via price cuts, from hungry vendors facing slow markets in the U.S. and Europe.

"Kudos to asset managers for not delaying projects since the asset management market is sure to rebound with a fierce, competitive stance," the report said. "It's better to make improvements while the overall market coasts."