In Wealth Outsourcing, Marriage Counselling is Most Important Before the Big Day

What makes one wealth manager stand out from the next?

Is it the ruthless efficiency with which they run their back-office operation? Or is it the quality of the client service, investment performance and uniqueness of the overall client experience? Frequently focused on projects that seek to drive efficiencies in the behind the scenes operations, it becomes easy to start thinking a “good” wealth manager is one that runs a tight operational ship and keeps its cost base low. But in reality this is only part of the story and focusing on this alone at the expense of the client experience is a dangerous game to play.

Many wealth managers try to tackle the operational challenge by outsourcing aspects of their business to a third party whose sole reason for existence is to do the heavy lifting efficiently and this broadly makes sense as a strategy. Why expend time and effort trying to establish your own market leading operations and technology functions when you can control this expense by leveraging the services of an expert partner? This frees up time and resources to focus on clients and increase the value add in the service these clients receive. In turn this will encourage clients to stay put, say good things about your firm to their connections and help the client base and AUM to grow.

Well that’s all good then! Setting a wealth management firm up for success should be simple; operational and technology excellence outsourced, check! Time and resource to focus on client service, check! all we need now are some portfolio managers that can deliver performance in our clients’ portfolios…… but wait a minute, not so fast!

There are real and present dangers with the transition to the outsourced model and more so in wealth management than any other part of the investments industry. These come down to those pesky end clients and that pesky proposition they were offered and signed up for in the first place.

The conflict as I see it is this;

  • On the one hand, you have an outsource provider, where the organisation’s survival depends on their ability to drive economies of scale from their operations, standardise and automate, all in the name of driving a margin off low basis point revenue.
  • On the other hand, you have the wealth manager where the organisation’s survival depends on their ability to differentiate their client proposition from the firm next door and consequently they are unlikely to fit an outsource provider’s cookie cutter model.

So, in undertaking a move to an outsourced operational model a wealth manager will need to be exhaustive in their due diligence and first answer the question; does the 3rd party really have the capabilities to deliver against all the requirements needed for our client proposition?

It is almost inevitable the answer will be no, regardless of the sales pitch, so the next questions to ask are;

  • Can we accept the changes to our current client proposition required to outsource, without bending it to the extent that we lose clients and damage relationships?
  • Is there actually an opportunity to radically change and enhance our proposition and service level to the extent that we become more attractive to our clients?

More often than not, an independent and objective third party view can be key to ensuring the tightrope of outsource conflict is navigated successfully and that both wealth manager and outsourcer are able to get the most out of any relationship.

Without this guidance, the most likely outcome is the wealth manager finds themselves with out of the box operational capabilities at the expense of their USPs and a client proposition that looks just like their next-door neighbour’s.

I started by asking what makes a wealth manager stand out and I’ll finish by suggesting that for an outsource provider to stand out they should be mindful of their clients’ requirements as they relate to the end client proposition, realistic, open and honest about what can and cannot be achieved. This will ensure that the outsource relationship doesn’t get off on the wrong foot, or damage the end client proposition for the wealth manager.