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Managers to outsource back-office burden

Melanie Tringham

Published by Equiniti, the study, which is entitled The Back Office: Not a Differentiator, But a Business Enabler, claims that 70 per cent of wealth management executives surveyed would like an outsider to take care of their systems.

In addition, more than one-third – 38 per cent – have changed their view on the value of outsourcing on the middle or back office due to legislation and regulation.

However, the report said: “In reality, it is expected that, due to past under-investment in legacy systems, many wealth managers have not been and will not be able to make the necessary investment, in terms of money and management time, in their in-house system to meet the regulatory requirement.

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“The potential to reduce regulatory burden and risk through outsourcing should not be overlooked.”

The research found that the greatest attraction for outsourcing was cost savings, but the ability to free up time was also a major factor.

The report, the result of interviews with 60 wealth management firms, found 66 per cent would outsource for cost savings, with 43 per cent saying they would do it to enable them to focus more on the needs of their customers.

The same proportion of respondents favoured outsourcing for headcount reduction.

However, there were concerns among executives about the loss of control of their back office function. The report said: “Understandably, loss of control is of concern to wealth managers. However, the one-size-fits-all approach of providers in the past, which limited the control and flexibility desired by wealth managers, is being overtaken by more modern solutions, mitigating the cause for concern.”

Loss of control was cited as the biggest concern for wealth managers, with 60 per cent fearing this. Meanwhile, 38 per cent were fearful of security issues, and 37 per cent said they had concerns about the loss of service.

The report said: “Although some interviewees were polarised in terms of their opinion of outsourcing, the aggregate view suggests that wealth managers are open to outsourcing, but perhaps cautiously so, wanting to weigh up the influencing factors before making a decision.”

Of the firms interviewed, all had used outsourcing, and more than three quarters were happy with the service.

The report concluded: “For many years, outsourcing the back and middle office has been commonplace for large parts of the institutional investment management community. It has allowed fund managers to focus on the day-to-day attention of the fund’s strategy and client servicing.

“Outsourcing to an independent administrator has become essential to attract capital and has also enabled funds to reduce their internal costs.”

Adviser view

Keith Churchouse, director of Surrey-based Chapters Financial, said: “This year has been quite an exciting year in looking at the profitability of the business and working out whether it can be enhanced. Outsourcing the administration could work, but be careful who you get into bed with and be aware whether the cultures of the two businesses are the same. If they aren’t correct, it will fail – but I do think we will see more and more of this going on and it will, I hope, free up financial planners from more of their administration burden.”