Gordon Easden, financial services practice leader at FusionExperience, explores some of the concerns in the minds of fund managers when it comes to outsourcing.

Traditionally there has been reluctance within the fund management industry to widen the scope of the business processes fund managers outsource. Although many are happy to outsource back office functions such as fund accounting many are still slow to recognise the value of broadening the scope of operations they are willing to entrust to a third party. However, the outsourcing landscape has changed, creating the opportunity for fund managers to transform service quality and cost by outsourcing much more and much more cost effectively.

The present day outsourcing by fund managers is part of a continuum that started 15 years ago. At its inception, fund managers were happy to outsource basic back office functions but would not have been comfortable allowing access to more complicated or ‘core processes’ such as customer service for example. The evolution in those 15 years is illustrated in the development of outsourced customer service solutions. This has almost become a matter of course for fund managers. Many are also considering outsourcing to a centre of excellence that provides a more holistic service as it would be supported by much wider range of technologies at a cheaper price.

This evolution has presented the fund manager with a wide array of options when deciding what to outsource, a question that can sometimes feel a little daunting. It is important for a fund manager to consider its options holistically and develop an in-depth understanding of what its operations are there to do. Fund managers must have a handle on core structure and costs and an understanding of what is going wrong. This will help isolate what functions are advisable to outsource and which may not be necessary.

A concern for many in the industry when looking to outsource are the perceived risks involved. It is fair to say that in some cases, when not managed adequately, outsourcing can create risk. Fund managers run the risk of losing the capability and knowledge to run processes and also the possibility that too many processes are embedded with the provider. This can make it difficult for fund managers to migrate away or renegotiate contracts favourably. There is also the risk of choosing a provider that is not a specialist in the areas that they have been earmarked to outsource.

The industry undeniably has specificities that present challenges in outsourcing, but also illustrate the importance of it. Fund managers’ operations are rapidly evolving, particularly in the technology and regulatory landscape, from customer care to the evolution of the STP market place with regards to targeting and positioning. This necessitates a high level of reporting and presentation technology to cater for regulations that are in constant evolution. The average size of a fund management firm remains small so there is a demand for centralised and cheaper service.

Finally, as the UK emerges from the recession, the specifics of the fund management industry and the evolution in regulation have led to a much greater emphasis on transparency of reporting and compliance. Outsourcing providers with evolving platforms and new technologies can help fund managers move from more traditional monthly reporting to a daily reporting cycle that many clients have come to expect.