Amid growing scrutiny from government and industry authorities as well as heightened competition in investment markets across the globe, asset services have now been providing the necessary support to asset management companies’ day-to-day operations.
The results of the outsourcing practice do not always satisfy the clients, however, and often, this “failure” of partnership can be attributed to the wrong expectations on the side of the fund managers. This article discusses two of these misguided notions when enlisting asset servicing firms:
Asset servicing is going to be a bargain. Many asset management firms are at a not-so-ideal business position when they do decide to tap outsourcing – and that is alright. However, some of them will tend to look at asset servicing specifically as a cure-all, and a means to make massive spending cuts on business procedures. And then they become surprised when they end up making a significant expense for the contract. In truth, asset servicing is in itself another form of investment. It is not a bargain in the sense of a buy-one-take-one promotion, but a bargain in the sense that a firm is able to save valuable time and resources for recruitment and training, purchase and maintenance of state-of-the-art solutions, and enlistment of actual experts in the field. In a way, this means gaining new talent and technology, but not with the usual amount of costs involved.
Only the asset servicing firm needs to adjust. A successful partnership will very much depend on the willingness of both parties to adjust. Inasmuch as a good outsourcing partner would like to avoid business interruption, asset servicing will result in some degree of change. Roles have to be handed over, after all, which might also result in some friction between the in-house staff and the third party firm. The latter will also inevitably introduce new methods for accomplishing the same goals, which might contradict commonly held views within the client’s organization. For instance, where living, breathing humans used to handle some tasks, many asset servicing firms would be keen on automation, believing that the delivery of many of these functions could be designed in a way that promotes accuracy, precision, and speed.
To avoid disappointment when tapping asset services, fund managers need to put forward their particular expectations at the negotiating table, before any agreements are signed. Contracts can always be reformulated to address each concern, to ensure the satisfaction of all parties in the end.
