When speaking with investment operations outsourcing providers, knowing the right questions to ask and the right criteria to evaluate will make your meetings and evaluations more productive.
Finding a reliable outsourcing provider requires good research and due diligence.
Finding information online is a good way to get started, but only in conversation will you get a real feel for the vendor.
Are you a (new) COO looking to improve your operation? Did your boss ask you to research outsourcing companies for wealth and asset managers?
Whatever the case may be, knowing what to look for and what to ask will save time in the research and selection process.
When you've identified back-office functions to outsource, the key is finding a provider with true expertise in that area.
Some outsourcing providers will offer a wide variety of solutions, but the services you need could be a small portion of what they offer.
For what you need, it might not be the provider's primary business focus. Thus, the talent and resources you get won't be as strong as for their other service lines.
At Empaxis, however, we are solely focused on investment operations. Buy-side investment firms benefit from the high degree of specialization we've built up over nearly two decades.
No matter what, find outsourced vendors that match with what you're looking for and their expertise.
When looking at outsourcing, you want to know the provider is competent with your software, be it portfolio accounting, OMS/PMS, risk management, CRM, etc.
Some vendors support a variety of systems, including those the investment firms builds in-house. Other providers will work with a limited set of investment management platforms.
Empaxis, as an example, is systems-agnostic, meaning we work with any systems our clients use.
Investment managers appreciate that because they don't have to give up their existing tech stack, nor deal with the hassle of migrating data from one system to the next.
Even if they were to migrate or upgrade their platform, Empaxis will do it for them.
Familiarity, comfort, and competency with your systems indeed are an important component, as the provider can help you get more out of those systems.
No business is exactly the same as another, and an investment operations outsourcing services provider should account for those differences.
An off-the-shelf product or service might work, but in other situations you need customization.
Some providers may require firms to fit within the provider's box, but Empaxis will tailor solutions to fit the needs of wealth and asset managers.
If there is a specific way your firm wants the work done, we follow that approach. Reporting, data formatting, calculations, formulas... we'll do it how you want it.
Some firms charge on basis points, or a percentage of assets under management.
Others charged fixed fees over the duration of a contract. Factoring into the fixed fees is the volume and complexity of the work. With more customized workflows, this structure is common and typically works best. Pricing for these models won't be known after one call, so it may require follow up for the provider to get all the details. After that, they'll share a proposal.
Additionally, some may charge hourly rates for projects with a minimum number of required hours for a given time period.
There are many different approaches outsourcing providers take when it comes to pricing, and you can decide what works for you.
Those handling your back-office activities should have relevant knowledge and experience. The last thing firms need is on the job training from their provider.
Portfolio accounting experience, a solid grasp of financial concepts and capital markets, and technology-driven/data-driven processes are the qualities to look for.
Additionally, the investment operations service provider should have a system in place to recruit, vet, hire, and train their talent. Team leaders should also be competent and experienced in operations, providing guidance to their staff.
When it comes to physical location, the outsourcing provider will in most cases perform the work offshore, and it will be performed in a secure facility.
But if they want onshore or nearshore, they can adopt a hybrid outsourcing model like Empaxis offers, providing much greater flexibility.
There are a variety of reasons for outsourcing and doing the work offshore, including labor arbitrage and increased timeliness of task completion.
Aside from geographical location, the outsourcing partner can perform the daily back-office work in your environment. With a remote desktop and a secure connection, you can see all the work the vendor is doing.
With the right provider, you will have full control over your processes.
For example, Empaxis works entirely in your environment where you set all the controls of what we can see/access. You can see all the work we're doing at any time, and we do not work outside an environment you can't control.
Trust, but verify. You can be reasonably sure the provider follows best practices, but you need confirmation.
One way to do that is by asking about compliance credentials.
As an example, the outsourcing provider should have compliance audits and certifications like ISO and SOC. These documents verify the vendor adheres to best protocol for data management and cybersecurity. For Empaxis, Ernst & Young is our auditor, and we have our ISO 22301 certification, among others.
As mentioned before, most banks and institutions already leverage offshore talent. These firms have very strict requirements when it comes to compliance and security, and they've found the outsourced model to work both efficiently and safely for themselves and customers.
Like any business, things don't always go as planned. Accidents and turbulent events do happen.
The outsourcing company should certainly have contingency plans. If the power goes down or another pandemic hits, the company needs to be prepared for just about everything. These contingency plans should be documented, and with COVID, their plans should have been put to the test.
How about backup resources? If employees leave or are out sick, do have they qualified talent to keep things running smoothly?
In short, make sure the provider has done their preparation so they can serve you through any situation.
It's nice to know that the outsourced partner has helped organizations like yours before. Or at the very least, it's important to know if they've helped other firms with similar workflows you have.
The provider may have case studies and client testimonials, and if you're seriously considering the outsourced partner, they may send you contact references.
Asking the right questions - and getting the answers you want to hear - are important for knowing if outsourcing your investment operations is right for your firm.
With this information, wealth and asset managers can learn how to get the most out of outsourcing, resulting in lower costs, higher efficiency, and less operational risk.
You may have other questions, but no matter what you ask, simply making the call or scheduling to meet an outsourcing services specialist will have you better informed.
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