In the dynamic landscape of wealth and asset management, the paradigm of outsourcing is undergoing significant shifts, driven by a confluence of factors such as technological advancements, regulatory pressures, and evolving client expectations.

MoW: What trends is Objectway observing in client interest regarding service delivery via outsourcing models?

Roger Portnoy: We have noted a growing trend among clients, especially in the UK and Europe, towards requesting service delivery through outsourcing models.
Traditionally, organisations have relied on legacy installations and on-premises maintenance models. However, even the most conservative private banking groups are now recognising the benefits of outsourcing, particularly in terms of cost efficiency, sustainability management, and enhanced service accessibility through cloud solutions. The pace of change may vary, but the direction towards outsourcing is well-established.

MoW: What are the main considerations for firms exploring outsourcing options?

Roger Portnoy: As the discussion around outsourcing expands, we have observed a notable shift from being solely a concern of CIOs and CTOs to becoming an active dialogue led by COOs. This reflects a broader organisational recognition of the potential benefits of outsourcing across compliance, administrative, reporting, transactional, and account management areas.

Firms must consider their operational capacity, skills, return on investment, and the desired level of client engagement. Depending on their size and business focus, firms may opt for different outsourcing models, ranging from custodial partnerships to comprehensive operational outsourcing. It’s crucial that outsourcing solutions are tailored to fit the specific needs and operational capacities of each firm. For smaller firms, outsourcing operational and compliance responsibilities to regulated custodial partners can offer significant advantages in reducing regulatory burdens and capital requirements. Conversely, larger firms with diverse client bases may opt for a more selective approach, retaining certain operational functions in-house while outsourcing others to achieve cost efficiencies.

MoW: How to cater to different firm sizes and business needs in outsourcing?

Roger Portnoy: While full lift and shift models offer immediate cost savings and scalability benefits, they also pose risks related to reputation, service quality, and future operational harmonisation. We acknowledge the potential benefits but emphasize the importance of careful consideration and planning, and of working with partners who have a proven track record in this area and who offer an elastic rather than rigid approach. As such, it means that applications across the entire value chain must be sufficiently open and modular, so that they can co-exist and interoperate with other systems.

For example, if portal technologies and external management of 3rd party services via Software-as-a-Service (SaaS) are the initial area of outsourcing, the starting point for digital and operational transformation, we can create an integrated technology and operational managed service to ensure performance with innovation and cost management.

As business and value propositional development evolve, perhaps extending into the manufacturing, maintenance, and distribution of investment solutions, we can extend the presence of its capabilities to cater to this requirement, in turn, improving the quality and depth of client reporting, and the operational effectiveness of investment management advisory services.

Executing this evolution through SaaS, along with other operational services in areas like data management, tax reporting, and market connectivity management (for FIX, Swift, and Banking services for example) can be bundled into the offering, allowing further externalisation to be achieved.

We can continue to expand this model into a fully managed business process service to support order management, and investment operations, but it can just as easily compartmentalise its contribution. This means that customers can utilise which ever client money management model best suits their proposition, including both those that are best run with some internal ownership, as well as those where depositary banks, or wealth custodians will be using their own permissions to regularly report to the authorities on client money activities.

MoW: How do you envision the future of outsourcing in the wealth and asset management industry?

Roger Portnoy: We anticipate continued growth in outsourcing adoption, driven by the need for cost management, operational efficiency, and regulatory compliance.

Modularity and interoperability are key aspects to consider when approaching outsourcing. By adopting open and modular applications that integrate seamlessly with existing systems, customers can design outsourcing solutions that align with their value proposition and operational preferences. They can also reduce complexity and cost, while enabling cross-border standardisation.

Moreover, an optimal partnership model should extend beyond technology to encompass comprehensive business process services, including order management and investment operations. This holistic approach allows clients to externalise various aspects of their operations while maintaining control over critical functions, ensuring a seamless transition to outsourcing.