July 6, 2022 | Matthew M. Caulfield, Managing Director, Head of Client Coverage
If there’s one word that can describe the last two years, it’s “uncertainty.” For the investment industry, this uncertainty has come in the form of volatile financial markets, the “great resignation” of talent, shifting workspaces, and a constantly changing economic backdrop.
Asset managers today are eager for new ways to manage this uncertainty when making decisions about their firm’s future. One way they can bring more clarity to their business is to outsource non-core functions, such as operations, and focus more on generating revenue. Doing so can be particularly powerful for managers who have spent the last few years in asset gathering mode and as a result, have less time to focus on managing the day-to-day operations. When executed effectively, outsourcing can serve as a strategic advantage and propel firms ahead of their competitors.
Benefits of Outsourcing
In today’s market, outsourcing non-core functions allows managers to focus on their clients and distribution partners. In doing so, they can allocate more resources to managing the additional activity that tends to pick up during times of market volatility, such as security analysis, portfolio composition review, and client meetings. For example, when markets recently declined, and many asset managers saw an unexpected influx of requests such as redemptions and tax loss harvesting, outsourcing these transactions meant they could handle increased volume with minimal impact to their client service.
From a longer-term strategic perspective, outsourcing can provide asset managers with several advantages to enable growth. By outsourcing functions such as account opening, reconciliation, composite management, and reporting, they can reallocate internal resources into more strategic roles.
Additionally, asset managers can benefit from a truly integrated solution, which supports consistency in data and streamlines processes. Any mandatory changes made across the industry are automatically taken care of – freeing up resources for investment managers to focus on other activities. When deployed strategically in the right places, outsourcing translates to lower costs, greater efficiency, and reduced risk across the firm.
Outsourcing allows managers to access the best practices and expertise that their outsourcing partner has developed by working with similar firms. This expertise and industry perspective goes beyond operations.
For example, when strategically launching new products, managers can talk to their service partner to gain insights into which products are performing well at which custodians. If a manager is acquiring another firm, there are processes and protocols service providers can offer that can create a smoother transition and allow the acquiring company to realize benefits of a combined firm.
Making the most of your outsourced operations partnership
For asset managers thinking of outsourcing new functions or those working with in-house resources, there are a few ways to get the most out of your outsourcing partnership:
1. Clearly (and regularly) communicate long- and short-term objectives. Including your outsourcer in strategic growth plans will go a long way toward maximizing your efforts. Sharing your strategic goals and a product roadmap can help your service provider think ahead and identify where their offering can support you and anticipate what services might need to be updated to support your vision. For example, if you’re focused on developing more customized products, like direct indexing, an outsourcer can share the different ways its platform can support you through fractional shares, customization at scale and ESG data.
2. Use your service partner’s expertise and access to what your competitors are doing. Ask your partner how other asset managers are handling particular challenges or opportunities. For instance, if you’re considering pivoting from institutional to the retail space, consult with your outsourcer to see what best practices other asset managers are following to find success.
3. Clearly define each team’s role. Develop a target operating model that addresses how you run your business from an account structure and address the balance of work being done by in-house versus external resources. In addition to discussing where the handoffs, audits, checks, and balances are to happen, be sure to reinforce the efficiencies that the team gains by outsourcing. With a tech and operations partner taking on more tasks, business leaders should also consider where to invest their managers’ time and resources in ways that will be the most beneficial to their clients and the business.
Reducing uncertainty
In today’s uncertain world, outsourcing can provide asset managers with some much-needed control. While there’s no way to tell where financial markets, employee demands, or investor preferences will go, taking greater command of the few things you can control can provide greater clarity into your business’ future. Doing so is a process that takes time, consideration, and intention. When executed properly, it can open new avenues of long-term business growth and success.
Matthew M. Caulfield
Managing Director, Head of Client Coverage
Matthew M. Caulfield, Managing Director, Head of Client Coverage, has over 30 years’ experience in the asset servicing industry. His consultative approach has resulted in clients’ ability to realize revenue streams through new product launches and entry into new distribution opportunities, while increasing efficiency and reducing risks and costs. Matt oversees all aspects of client experience, including marketing, sales, solutions, relationship management and client services all geared towards enabling asset managers to achieve their goals through benefit-centered solutions.
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