thewealthnet.com article: Outsourcing 101 - a provider’s perspective
08 October 2015
Outsourcing 101: a provider's perspective, Karen Gilchrist thewealthnet.com 08.10.2015
Although still in its infancy and a topic of continued debate, outsourcing is now a reality for half of wealth management firms. As uptake looks set to continue, prospective clients should consider what they can do appeal to providers.
Turning the premise of Compeer's latest research project on its head (see thewealthnet 07/10/2015), Chris Fisher, chief executive of Multrees Investor Services, urged the audience of wealth managers to ask not 'does outsourcing work for wealth management firms?' but 'do wealth managers work for providers?'.
Outsourcing - or the offloading of a task to a third party - is nothing new. The concept has been around since virtually year dot; but it remains "relatively immature" within the wealth management industry as high costs, increased regulation and data protection concerns have historically deterred firms. However, Compeer's latest research suggests that half of firms are now outsourcing their IT and operations, with a further 17 percent considering doing so in the near future.
With five years' experience in providing outsourced services for investment managers and family offices, Mr Fisher highlighted some of the questions he should but "surprisingly doesn't get asked about" by prospective clients. These included whether the provider is a realist or simply a 'yes person' and whether they have the capacity to manage your needs, both now and further down the line. This, he said, was a case of buyer beware, and wealth managers must do their research. However, he warned firms to watch out for referee bias, where referees may have ulterior motives for wanting you to share the same outsourcer.
Mr Fisher also pointed out some of the key turn-offs when establishing a partnership with a prospective client. Here, price and passing the buck of responsibility were the top ranking. "If the first question is price, forget it. It's a value proposition: what value is your business going to get long-term. Similarly, if I get the sense that people are trying to absolve themselves of any responsibility to do with regulation, that's a pretty big turn off for me."
Alongside listening to feedback from providers, who may have suggestions to improve a firm's business model, establishing compatibility and maintaining a relationship should be key. "Provider-client relationships are relationships. If there's not a daily, weekly or monthly get together or team building exercise that's a really simple way for a relationship to turn sour or end prematurely." Mr Fisher's wealth manager warnings were later echoed by fellow speaker Jerry Crossfield, vice president of business development at L3C LLP, who said: "Wealth management is based on relationships. You should be able to formulate a good relationship with your provider."
Mr Crossfield's presentation also drew on Compeer's research, particularly in terms of IT and its impact on firms' scalability. According to the study, 33 percent of firms either strongly disagreed or disagreed with the statement 'our model makes efficient use of IT systems.' Poorly performing legacy systems are one of the major reasons for this and Mr Crossfield urged firms not to feel inadequate if they need to call in specialists to update these. He added: "The market is now demanding a digitised service. If you don't fill the gap, disrupters certainly will."
The presentations were made in association with Compeer at a conference held at London's Fishmonger's Hall on Tuesday 6 October. The evening also revealed the findings of Compeer's latest research into outsourcing, which drew on the views of wealth managers, investment managers and private banks who collectively manage £200 billion of assets and generate £1.5 billion in revenues.
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