Outsourcing but staying in control

Mal Cullen, Head of the Americas and Eagle ACCESS℠

Many asset managers and asset owners are standing at a crossroads as far as their technology is concerned. Legacy systems are creaking under the strain of being asked to perform functions they were never designed to execute and can’t handle the sheer volume of data they’re being asked to process.  At the same time, it’s widely accepted that the worst ravages of the financial crisis are past and firms are looking at how they can best position themselves for future growth.  With pressures on fees from clients on the one hand and increased compliance and regulatory hurdles on the other, the focus for this future growth is firmly on achieving operational efficiency.

As a result, firms that are looking at making significant investments in upgrading their technology, are doing so with long-term solutions in mind and with efficiency at the heart of their decision-making.  As a result, the inevitable question that presents itself is whether or not to outsource. This was a topic I addressed in a panel discussion at the TSAM Boston conference in November.

At first glance it seems entirely logical and the perfect solution. Outsourcing enables firms to divest themselves from both technology and operational responsibilities that are not competitive differentiators.  Firms can reduce their technology spend as they no longer require large in-house teams and they don’t have to utilize their own scarce technology resources  to upgrade their technology; it’s all taken care of for them leaving them to focus on their core competencies. If they choose their  partners well, they will benefit from improved tools that will serve to enhance their technology and operational capabilities and further aid efficiency. These benefits, among many others, have led many to proclaim that the outsourcing of IT systems, operations  and infrastructure is the future model for the industry.

At a more practical level, however, it’s not quite that straightforward and there are a number of nuances that don’t make it right for everybody, right now. Financial services firms are typically risk averse and slow to adopt new technologies. Moreover, they are often reluctant to hand over control of their data, they are increasingly concerned about cybersecurity; and they have processes and applications their employees already understand and are comfortable with. The proposition of outsourcing can seem like moving straight from a standstill to 100mph.

Quite simply, many firms aren’t ready to move to a fully outsourced solution. At Eagle, outsourcing is a continuum with inherent flexibility rather than an all-or-nothing solution. Firms are able to achieve the operational efficiencies they’re looking for but within an arrangement that suits their needs. They also have the ability to move back and forth along the continuum at any time by selecting to outsource only components of their operations or technology.  Depending on their requirements and priorities, this can be as simple as outsourcing the technology around the systems infrastructure through to operational tasks such as reconciliation, pricing and reference data or as complex as performance measurement. It’s a partnership approach whereby we, the vendor, align ourselves with the processes and systems that fit with the culture and objectives of the client.

The second obstacle many firms face with outsourcing is the fear of losing control of their data.  By combining Eagle’s globally deployed technology solutions and BNY Mellon’s OnCore℠ outsourcing solution, clients are provided a scalable and robust platform, enabling more transparency and greater control over data, as well as enhanced support to the overall investment decision-making process.

Outsourcing is at once both an attractive and daunting proposition for investment firms as they come to re-evaluate their technology needs. It’s incumbent on the software vendors to appreciate this and provide solutions that are flexible to suit the needs of their users both now and in the future.  The future of the industry may be outsourcing, but it needs to get there at its own pace.

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