Five things to consider when outsourcing fund operations

Northern Trust's Ryan Burns, head of North America relationship management for Global Fund Services, outlines the top five considerations for firms when selecting an outsourcing provider. 

Outsourcing fund operations has become a popular way for investment companies to bring costs under control and stay prepared for changing regulations and client needs. More companies are seeing the benefits to moving from fixed costs and internal infrastructure to the more flexible outsourcing approach. And outsourcing providers continue to refine their offering to better serve their customers.

We have worked with many companies that have “taken the plunge” and decided to move towards a complete or partial outsourced solution. Reflecting on these implementations, I believe fund managers can benefit from five considerations before and during the transition.

Define benefits and priorities: It can be easier to make a strategic move when your peers are doing the same thing. But successful strategy must be driven by specific goals. Gather stakeholders from throughout the organization to see exactly what benefits are expected from outsourcing. Some firms are attracted by the ability to pass on the costs of back office operations directly to clients in the form of a fee, others because of the additional transparency this cost offers to all parties. Figure out what is a priority and make sure the chosen outsourced solution offers it – and ensure, to the degree possible, all stakeholders have bought in.

Retain your “special sauce”: Identify what makes your company unique, so it doesn’t disappear in the process of outsourcing. For many firms, this is not a problem since outsourcing operations will allow greater focus and attention to client relationships and their alpha-generating asset allocation and investment process. But it is important to see if there are areas related to operations that should be retained to keep the firm competitive.

Prepare for changes to the user experience: Outsourcing providers can mitigate certain impacts of the transition, but not everything may be the same – they might be better. Certain reporting processes, for example, could be accessed through a portal. Screens may look different, and functionality may change. Implementation will be easier if staff understands how things will change and when it will be happening. Even better, they should be able to offer feedback and suggest revisions if at all possible.

Map the transition: Moving to an outsourced provider invariably involves some disruption. The best providers are up front about the type of changes that will occur. They will be clear about what disruptions to existing processes may occur, how best to mitigate and clearly offer alternatives. Demand a detailed time frame for implementation and ask – and ask again – about potential obstacles along the way.

Give feedback: Outsourcing providers welcome—and rely heavily on—client feedback. Be ready to make comments and suggestions to your administrator throughout the process, not only at the end. If there are issues, they can and should look to rectify them. A company might have done dozens of migrations, but each one is different, and it is important to create a fully functional partnership that goes both ways.

The adage “an ounce of prevention is worth a pound of cure” applies to outsourcing. Planning ahead of a transition, asking the right questions and engaging in wide-ranging conversation beforehand can help smooth a transition and lay a foundation for success in the months and years after the project commences.