Information technology spending tops US$71.5 billion in 2004

With the global securities industry now emerging from a three-plus year slump, information technology budgets are again on the rise, according to new research from TowerGroup.

“We expect to see the global securities industry invest US$71.5 billion in information technology in 2004,” said Rob Hegarty, vice president of the Securities & Investments practice at TowerGroup, in a news release.

“This represents a marginal increase of 1.4% over 2003, still far below the highs hit in IT spending of US$86.2 billion back in 2000. However, a return to stable and growing IT budgets takes on greater significance following this period of major downturn and intense tech cost-cutting.”

Between 2004 and 2008, TowerGroup believes the highest percentage of the industry’s IT investments will be focused on the asset management arena. Over the next five years, TowerGroup expects asset management IT spending to grow by approximately 200 basis points more than any other area in the securities industry. A combination of the financial markets returning to a growth stage and a movement away from transaction-based models to fee-based models is fueling increased demand for better technology to support this function.

Other highlights of the new research include:

in 2004 North America will account for over 42% of worldwide securities IT spending, up from 40% in 2001;
• CIOs in the North American securities industry are becoming more reliant on external technology providers, with the portion of budgets spent on external providers rising to 58% in 24 from 43% in 1996;
• globally, institutional brokerage firms are projected spend nearly $50 billion on institutional technology maintenance and development in 2004, up slightly from 2003; and
• after three years of minimal to flat growth in IT spending, the North American retail brokerage industry is spending again in 2004 with a budget of over $5 billion, up over 4% from 2003.

Hegarty noted that the securities industry is poised for a significant shift not only in spending, but also in the manner in which IT budgets are managed and dollars allocated and approved. “With ‘cautious optimism’ as the watch word of the day, the industry is taking a like approach to IT spending, being careful not to fall back into the old ways of the 1990s,” he said.