To outsource, or not to outsource? That, is the question

Trader Talk

Consolidation in the wealth management space is real. The same can be said of the financial services landscape overall.

Mariner just bought Advice Period. Bain just took a large stake in Carson. Goldman purchased United Capital not too long ago. There is more investment capital in the independent channel now than there has ever been.

Patrick Murphy, president and CEO of STP Investment Services, argues for thoughtful tech adoption.

Fifteen years ago, firms with $100 to $200M in assets under management felt like the belles of the ball. Now they look to the future and wonder if they can build enough enterprise value before they execute on their succession plans.

The pressure that all independent advisory firms face is enormous. Even larger firms are now faced with the challenge of deciding whether to “build something” or identify outsourced solutions that are a good fit for their models.

As multi-billion-dollar firms are competing and jockeying for position on multiple fronts, and sub-billion firms are scrambling to build sustainable business models, things can quickly get overwhelming. It is easy to succumb to analysis paralysis or make a knee-jerk decision to spend money on one of the millions of pieces of proprietary software or an outsourcing partner skilled at handling only a fragment of what you likely need to grow and keep pace.

And yet, proper due diligence is hard, especially when it may seem like everyone on the block is using one brand name. Good ROI is critical to your success as an organization. Which begs the question: where to begin? I run a company that handles outsourcing for advisory firms, and here is what I’ve seen in my business.

Characteristics of a good technology-enabled service provider 
It is important that the service provider you select enhances its technology and integrates new services with the goal of providing clients with the fastest, most reliable operational outsourcing at the most cost-effective price. It should not only build but provide careful watch over every step of your day-to-day operations from data flows to performance calculations to client reporting. Your partner should have a co-creation model based on collaboration.

That leads into another vital trait of a good service provider — customization. No two firms’ outsourcing needs are the same; you need a flexible middle ground for firms looking to leverage powerful investment operations while still retaining control over aspects of their back, middle and front offices. After all, your business is unique, and your service needs are no different. I have come to learn that it’s pivotal to let advisors have control over deciding which services they want to utilize, and which are nice-to-haves.

As a wealth management firm, you should not sacrifice control of your data, workflows or other vital processes. Those that deliver excellent service in a way that is custom fit to their clients’ specific needs and goals will win. That service also needs to remain consistent and uninterrupted regardless of what is going on in your vendor’s world. Service reliability can make or break a financial advisor’s business.

Another key consideration is whether or not the management team at the outsourced solutions providers you are talking to has walked in your shoes. Those are the service providers that understand your pain points and maintain a singular focus on developing a tech-enabled service framework that helps you run your operations more efficiently and effectively.

Keep it simple, sailor
There is a rising demand for solutions that are simple, streamlined and scalable. Firms are seeking partners that deliver tailor-made solutions to solve their firm’s issues, not quick fixes or simply an out-of-the-box solution. Each time an advisor puts time and energy into every vendor that supports them, that takes them away from focusing on what matters most: serving their clients.

As financial services firms evolve and continuously modernize their client experience, while their clients demand more digital content and forward-thinking opportunities in light of the COVID-19 pandemic, financial advisors are looking for investment management operations service providers that can deliver the entire suite of services needed to run and scale a business.

Advisory firms need a single partner who can deliver on business process solutions, investment operation services, trading, reconciliation and settlements, reporting, portfolio accounting, performance measurement and compliance — an all-in-one solution. Or as close to it as possible.

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