What to consider when hiring an outsourcer

Hiring an outsourcing firm is not a decision to be taken lightly. Finding the right vendor to help manage your business makes all the difference for a growing firm, which is why a diligent appraisal is vital. Here are some suggestions on how to make sure you’re getting a good fit and a reliable partner.

When considering an outsourcing solution for your firm, you want to assess whether your prospective vendors have the following capabilities:

  • Can the vendor you’re considering download electronically from major custodians, including the specific custodians you plan to use?
  • Can they capture transactions off the web for assets not held at major custodians?
  • Can they handle all asset types? The flexibility to incorporate fixed income, equity, mutual funds and alternative investments is important.
  • Will they offer support for entering assets manually if electronic entry is not possible?
  • Will the data reside on an in-house server or on the web?
  • Will there be Web access for your firm in addition to a client portal?
  • Are they able to consolidate all of a client’s investments into a single report?
  • Do their reports compare actual allocations with targets?
  • Will you have a single point of contact, or are you working with a team?
  • Does the vendor understand investments as well as the technology?
  • Do they give you the ability to retrieve data from the system in order to create custom reports?
  • If you decide you no longer want to use the vendor, can you easily retrieve the data bring it in-house or transfer it to another outsourcer?
  • How comprehensive are the vendor’s documentation and procedures?
  • How extensive is the user training they offer?
  • Is there a disaster recovery plan?
  • What are their billing solution capabilities?

Your outsourcing vendor will become an extension of your firm, and they will be a partner in providing your clients with the best service possible. Talk with everyone before committing, especially the individuals that will be handling your clients’ accounts on a day-to-day basis. You want the contact person in your office and their counterpart at the outsourcing firm to have a good working relationship. Ask for and speak to references.   Ask for their service agreement and implementation plan, and demand that the tasks, projects and timelines are detailed. 

You should also carefully examine the vendor’s pricing model. How do they charge for transactions, assets under management, types of investments, the way the data is delivered, the type of reporting, and the number of accounts? There are many ways to charge for these services. It is important to understand what is included and what is extra.

Once you understand the costs, analyze the cost of achieving the same results in-house. How many employees would you have to hire?  At what salary and benefits? Consider what you could do with the money you’d save by outsourcing. Outsourcing allows you to invest in staff who serve clients directly, keeping your back office lean. That said, you should expect to have a person on staff to manage the relationship with the outsourcing firm — someone who understands both investments and the technology behind the system. 

While weighing the costs and benefits, look at your return on investment not just in the short term but in the long term as well. Outsourcing may not be the cheapest solution up-front, but by concentrating on your core competencies and growing without hiring additional staff, you will reap benefits.

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