US Wealth Managers Turning To Outsourcing - Celent Study
US wealth management firms are increasingly outsourcing significant operations to cope with rising costs and increased client demands that have arisen since the financial crisis of 2008, according to a study by Celent, the financial research and consulting firm.
The report, called Wealth Management Outsourcing: Vendor Landscape, said that many firms are outsourcing to focus on their core business and that wealth managers are increasingly using technology as a way of achieving this. While a relatively recent development, outsourcing has gained faster momentum over the past four to five years, Celent said.
Cost-cutting was the primary driver behind the adoption of outsourcing, and could save from 20 to 30 per cent of costs over a three to five year period, the report said. Outsourcing also offers scalability and is more relevant now as firms are either cutting down or closing operations in certain markets, while looking to expand in others, it said.
The report found that mid- and back-office functions are more likely to be outsourced than front-office operations.
Outsourcing in the areas of global custody, securities lending, client servicing, and accounting and settlement of trades is relatively widespread. While some firms are slowly outsourcing their client onboarding or financial planning functions, outsourcing in the areas of product development, marketing, and fraud management is still limited.
“Most vendors’ offerings are broadly similar. All of them have developed strong expertise in mid- to back-office functionalities, while support for the front-office is relatively less developed,” said Arin Ray, an analyst with Celent's securities and investments division.
“This is due to the fact that wealth managers are still reluctant to outsource front-office functionalities. However, things are changing as firms look to outsource more front-office functions. As the market evolves and vendors build on their expertise over the next 18 to 24 months, the differences in vendor offerings will become clearer,” he added.