Tom Wooders is Head of Sales, Clearing and Wealth Solutions at GPP, which provides wealth platform, execution, settlement and custody services to a broad spectrum of financial institutions. In this exclusive interview, he highlights low levels of technology outsourcing and explains why wealth managers should no longer overlook its many business benefits.
The nature of their business, and the resulting desire to keep tight control of operations and technology, means that wealth managers have understandably been “late to the party” on outsourcing. And while WealthBriefing research shows openness towards it growing strongly (i) , it seems that actual adoption lags behind. According to Tom Wooders, head of sales, clearing and wealth solutions at GPP, too many are still overlooking the manifold benefits outsourcing can bring, although a growing vanguard is seeking to use it to transformative effect.
To shine a light on just one of its markets, research commissioned by GPP found that UK Discretionary Fund Managers only tend to be outsourcing 10 per cent of their operational activity. In fact, Wooders observes that, “outsourcing in the UK wealth management community is relatively small overall in comparison to other financial sub-sectors like sell-side or large-scale asset managers.”
In his view, a number of drivers should be drawing firms towards outsourcing (in both its technology and business process outsourcing guises), yet chief among them should be that it offers a pragmatic path to scalability.
Scalability and specialisation
Wooders first adds some important nuance to the notion that outsourcing is all about cost-cutting. Although wealth managers can certainly make significant savings by leveraging outsourcing providers’ economies of scale and eliminating bottlenecks, he sees gaining predictability over costs now figuring much higher in their thinking, whether that be in terms of hardware, software or human resources. They are looking to the future here too.
WealthBriefing research has shown that 68 per cent of wealth managers plan new business lines over the next few years; while 63 per cent are targetting new client segments; and 42 per cent are broadening their investment offerings (ii). This ambition is heartening, yet firms are having to build their growth strategies on shifting sands when it comes to technology, regulation and client expectations. The best outsourcing relationships are therefore geared to grow responsively alongside businesses, Wooders argues.
“Outsourcing firms should negotiate a fee schedule aligned with their goals for business growth and so gain assurance of predictable, proportionate cost increases,” he says. “In fact, many providers now, ourselves included, offer fee schedules which reward growth in terms of assets and transactional volume. That’s increasingly what clients expect today.”
Specialisation should be another watchword: “Our research showed growing appetite to outsource more commoditised activities like back-office, asset servicing and settlements that wealth managers consider non-core. These firms say they want to focus their energies on clients and where they add value, which is where they make their profits.
“At the same time many of this cohort want to enhance the quality and consistency of their operational processes through outsourcing to specialists. It’s not `How do we do the same for less?’ – far from it.”
Gaining – and maintaining – competitive advantages
Wooders also hears wealth managers citing third-party technology as a means to gain (and more easily maintain) competitive advantages on the industry’s key battlegrounds. Standing on the cusp of the biggest intergenerational wealth transfer in history, and amid rocketing expectations generally, client-facing technology is arguably the main theatre in the war for wallet share.
“Wealth managers must do more to distinguish themselves digitally - among their competitors, but also from all the disruptors encroaching upon their territory,” says Wooders. “The executives we’re talking to increasingly see that outsourcing can help them attract and retain new client segments since it ensures their technology stays right up to date without them having to become technology companies themselves.”
As Wooders highlights, the outsourcing issue has always been bound up in one of the industry’s most vexed technology questions: What is the right level of customisation when spiralling costs, barriers to future development and key man risk can be the price of pursuing it to its furthest extremes?
Here again, he sees pragmatism winning out, noting that, “There is a lot of focus on the back-office, but our clients particularly like that we can do everything associated with providing end-investors with digital access too, including a white-labelled client portal for portfolio views and reporting.” For firms wanting to respond decisively to rapid changes in the industry, there may be a lot to like about “off-the-peg” solutions.