5 Questions Every Financial Firm Should Ask Before Outsourcing Operations

August 16, 2018 - Stephen Van de Wetering

To find the best investment operations outsourcing company for your firm, you need an up-close look at the organization’s practices and policies.

Reduced costs, scalability, and greater operational efficiency are good reasons to work with a
third-party vendor, but in order to know which investment management operations outsourcing firm is the right one, you should know the firm on an intimate level, just as they should know your needs clearly.

And if you’re skeptical about BPO (business process outsourcing), asking the right questions will give you a more informed view of how outsourcing for money managers really works.

Finding the Investment Operations Outsourcing Company: Questions to Ask

Do They Understand My Needs?

Offering customized services is at the heart of understanding the client and putting their needs first. You shouldn’t have to change your ways to fit the needs of a third-party vendor.

The top investment management operations outsourcing providers will be able to work with any portfolio accounting systems and custodians you use, and they’ll run your software and reports in exactly the way you want them to.

For example, if you need performance calculated using ACB (Average Capital Base) instead of DCF (Discount Cash Flow), or IRR (Internal Rate of Return) instead of TWRR (Time Weighted Rate of Return), the outsourcing provider should be flexible and have no trouble performing either-or.

Read a case study that shows how an investment firm can benefit from custom services.

Do They Hire the Top Portfolio Accounting Talent?

A leading investment management operations outsourcing company will recruit the cream of the crop.

While the work may be done offshore, the people who handle your portfolio accounting needs will be
English-speaking, college-educated degree holders in business or IT.

They’ll likely have advanced degrees at the MBA or PhD level and/or hold a license or certification in their field of work. In addition, they will have experience working for large banks and financial institutions.

Does Their Operations Team Follow Six Sigma?

Six Sigma is a method used to track and eliminate defects in a product, process or service, and one of our previous blogs explains how investment managers benefit from Six Sigma.

The last thing you want is finding errors that your outsourcing provider should have caught.
Six Sigma was designed for this very reason: companies can better detect errors before releasing their product or service to the client or customer.

Not only does six sigma track defects like reconciliation and performance reporting mistakes, it also monitors the turnaround time (TAT) for a given task, ensuring you get you reports on-time.

The best middle-and-back-office solutions providers will follow this methodology, and this should be one of the first things you ask about when talking with a vendor.

Are They at the Forefront of Cutting Edge Technology? 

Hiring top talent to do routine, “mundane” work is not the goal of a leading operations outsourcing specialist. Rather, the skilled staff is there to actively improve operational efficiency by researching, developing, and setting up RPA (robotic process automation) systems around your workflows.

These portfolio accounting experts are constantly looking for solutions to speed up the daily cash and positions reconciliation process, for example.

Also, their developments will more quickly and easily detect and correct errors before you receive the report, pristine and pretty as the report should be.

If they are true to the ways of Six Sigma, the best investment operations outsourcing companies will put innovativeness at the forefront to aid in their never-ending pursuit of better operational performance.

Are Their Middle- and Back-Office Operations Audited?

Because middle- and back-office outsourcing for investment managers as an industry is not regulated, third-party providers are technically not required to be audited.

However, the best fund administration outsourcing companies will voluntarily agree to inspections from outside agencies, ideally from the Big Four accounting firms.

Outsourcing firms’ auditing will make it easier for your firm’s compliance requirements as it relates to working with outside vendors. In addition, check if they follow GIPS and are ISO 27001 compliant.

If the vendors are serious about getting your business, they will make compliance and transparency a priority.

Building Trust with a Fund Administration and Accounting Outsourcing Provider

Knowing the right questions to ask a BPO services provider will give you a closer understanding of how outsourcing benefits investment managers and if their specific methods and solutions are right for you.

Once you learn they:

Then you will have found the perfect investment operations outsourcing company for your firm.

And if these foundations are in place, you can be certain they will deliver on the promises of cost savings, scalability and increased operational efficiency.