Following the financial crisis that occurred in 2007/2008, wealth management companies are encountering a couple of challenges such as reduced turnaround time, the need to minimize costs, improve efficiency, mitigate risks, and comply with strict regulations. In this ever-growing environment, wealth management firms are slowly adopting technology and operations outsourcing as a key strategy for addressing the challenges. Outsourcing gives asset management companies the time and flexibility they require to respond to the constantly fluctuating market conditions.
Advantages of outsourcing wealth management
1. Cost cutting and scalability
Cost cutting is the primary driver behind the implementation of outsourcing that is believed to save between 20 percent and 30 percent of expenditures over a period of three to five years. During the recession, the value of assets declined significantly, but the overhead and staff costs remained abnormally high. Many asset management firms went out of business, and the surviving ones saw profits crash. A recent survey carried out by State Street shows that minimizing costs through improved efficiency is the primary business objective of most wealth managers. Outsourcing provides easy scalability options, especially now when companies are either cutting down or terminating operations in some markets while focusing their attention on others. With scaled operations, wealth managers can choose the perfect combinations of tools and services they require to address the needs of clients.
2. Addressing complexity and enhancing efficiency and focus
Solving issues that could trigger another recession similar to that of 2007-2008 has been a challenge for wealth managers, because of increased business complexity and diminishing revenues, profitability, and assets. The complexity is due to technology advancement since all wealth managers now maintain a varied set of systems, software for generating proposals, research, trade order management, portfolio accounting, and management of business processes and operations. Wealth management companies can streamline their operations by assigning technology as well as portfolio management solution to an independent party. Outsource platforms take responsibility for asset management operations, enabling wealth managers to focus on important business objectives such as recruiting and retaining clients, making wise investment decisions, and carrying out operations more professionally.
3. Streamlined data management
Outsourcing data management to experienced service providers can minimize the chance of human errors. Competent service providers thoroughly authenticate all the data obtained from third parties and pinpoint any gaps. Therefore, they help in guaranteeing streamlined and correct data management.
Outsourcing practices have become popular in the field of wealth management. Firms that have adopted an outsourcing model term it as being fundamental to their improved competitiveness. Thus, the rate of outsourcing adoption will increase significantly when wealth management companies begin to view outsourcing as a strategy for gaining a competitive advantage over other firms.