A strong global economy may be a good thing, but with it comes rising costs and talent shortages.
The investment management industry is not immune from these challenges, and middle-office outsourcing could be a way to avoid higher expenses and lack of talent.
A strong economy typically translates to a greater demand in financial services, and the increase in clients and reports that need to be generated can stretch investment management operations thin.
Under these circumstances, wealth managers, asset managers, and hedge funds could reap the benefits of middle-office outsourcing.
Furthermore, the wealth management industry is expected to have a shortage of 200,000 employees by 2022, according to an Investment News article.
On the operations front, it could be hard finding the people needed.
Middle-office outsourcing providers give investment firms access to the specialized operational talent they need.
Operations management is an outsourcing provider’s specialty; the provider can handle technology-related matters, report generation, and quality control.
Middle-office outsourcing companies, through their own efficient practices, can pass on cost savings to their clients.
In a job market where job-seekers have the upper hand, potential candidates may demand higher compensation and benefits, but it may not be in the firm’s budget.
One of the reasons the costs are lower is because investment firms only pay for labor, and they’re not having to pay for vacation time, health care, and additional bonuses and perks that in-house hires will require as a condition for their employment.
According to a study from the Society for Human Resource Management (as reported by the Huffington Post), employers will need to spend the equivalent of six to nine months of the departed employee’s salary in order to find and train their replacement.
So if an investment management middle-office operations analyst has an annual salary of $50,000, the cost to replace him or her could vary between $25,000 and $37,500!
Operational turnover hurts financially, but it also hurts a firm in lost productivity and poorer reconciliation and performance reporting quality.
And in a strong economy, employees are more likely to look for greener employment pastures. Recently, the opportunities have been so plentiful that a negative trend known as “ghosting” has emerged, where employees simply leave their job without warning and no further contact with the organization.
The company recruits and retains the
operational talent so investment managers don’t have to.
It is the outsourcing provider’s job to make sure their clients have portfolio accounting experts running their middle-office operations.
Investment companies only have to request the amount of talent needed, and it should be a smooth and seamless task for the outsourcing firm to add or subtract labor for operations.
With an outsourced reconciliation and reporting team for the middle-office, wealth and asset management firms avoid the expense and hassle of recruiting and retraining.
A strong economy poses challenges to investment firms: higher turnover and the pressure to offer higher compensation in order to attract top talent from a limited pool.
Outsourcing gives investment managers access to expertise and services at a low cost that otherwise couldn’t be had by hiring in-house.
In this way, firms are in a position to reap the full benefits of a strong economy, which should translate to higher revenues from investment performance and management fees, while being spared of the risk.
That is efficiency at its best.