What to consider when reassessing financial services providers

Our recent LinkedIn poll revealed that 95% of professionals feel it would be useful or very useful to have a single-source provider to deliver all their financial services needs. However, a significant barrier to achieving this goal is the reluctance to switch services away from a current provider. 55% of respondents reported concerns about the transfer of data, and an additional 18% believed they lacked the internal resources to support such a move.

To address these concerns, we assembled four expert panels across the globe to discuss considerations when switching financial services providers. Watch the webinars now to learn more.

The rise of outsourcing is accelerating

Over the last decade, we’ve seen the trend towards outsourcing of financial services and fund administration soar. One of our expert panellists for the Americas, David Warsoff, Head of Operational Due Diligence at JP Morgan Alternative Solutions, described the changing landscape. “If you go back even 10 or 15 years,” he said, “fund administration was somewhat optional. Now it’s a given.”

This rise has been driven by numerous business needs, from efficiency, to cost saving, to building on in-house expertise. “Outsourcing allows you to get experts involved, instead of you having to try to keep everything in-house,” explained James Stull, Senior Partner at King & Spalding, a member of our MENA panel, adding, “Having outsourced teams allows you not to have to incur that cost of hire yourself.”

Deborah Hutton, a partner at Eversheds Sutherland, discussed similar issues on our European panel. “With clients who are looking at complex services such as risk management and regulatory compliance… outsourcing some of these activities to providers that are well established and well regulated can be quite helpful.” She added, “it’s also the reputation and knowledge that we bring.”

Lastly, it’s driven by a change in investor attitudes. “Investors require it,” stated Gary Berger, Audit Partner at CohnReznick, an Americas panellist, “it’s a no brainer.”

Switching providers is treated with unnecessary trepidation

Given the recency of the dawn of this trend, many firms are still working with the first provider or providers they engaged. The prospect of switching vendors is met with caution, due to fears around the complexity of the process and the time involved.

Investors can also be nervous about change. Martin O’Regan, Managing Director of Solas Fiduciary Services, told our APAC audience, “Changing vendors can be a bit of a red flag to some investors, so it’s got to be for the right reasons.”

The need to switch providers is becoming more common

There are many “right reasons” for a firm to consider a change. One of the most common is simply growth.

“The partner you had on day one when your business was a very small hedge fund is a very different service than you might need when you’re a $3 billion shop with 50 employees globally,” explained Jeff Kollin of KMPG in our Americas webinar. Future growth is, equally, a concern. “If I need to double in size in two years,” O’Regan speculated, “does my service provider have the capacity to double in size with me?”

Berger lists expertise as an issue, saying that clients approach him about switching administrators due to “a lack of knowledge of the particular asset class they’re dealing with.”

Stacey Arrigo, Head of Business Development at Broadscope Fund Administrators explained in our Americas webinar that she sees clients moving away from the big names in administration because “they’re not being serviced the way they had hoped, because they’re getting lost in the shuffle.”

Another major factor is consolidation. Asset managers have, on average, a pool of seven vendors, and O’Regan related that many firms are “assessing the administrators they have and then trying to consolidate.”

Finding the right provider is one half of the solution

“Not all administrators are the same,” emphasised Berger. All our panellists hold strong opinions on how to select the right provider to support your business for the long term.

“It’s about finding the right fit to suit your operational infrastructure, to suit your strategy, to suit your business,” said Warsoff. He added, “You want to make sure that the service provider has the right level of expertise and service, and the right focus on you as a client.”

The technology offering is a crucial factor put forward by Kris Allen, Global Head of Client Onboarding at Apex Group. “By selecting the right service provider, you can get best-in-breed products and technology,” he contributed.

Glyn Gibbs, Head of MENA Business Development at Apex Group, raised an important point about experience. “How experienced are the people, not just that you’re dealing with directly, but that they’re bringing with them?” he speculated.

Collaboration and cooperation came up several times. Kollins, in our Americas panel, shared that, “I don’t like the term ‘service provider’ – it’s really a partner. Having that relationship, coexisting and working together is key.”

Our panellists agreed that cost, while a concern, shouldn’t lead the decision-making process. “Cost comes into the equation,” admitted Stull, “but it shouldn’t be the main deciding factor.” He continued, “You can’t equate cost with value.”

Planning and execution is the second half of the solution

“There’s no such thing as a seamless switch,” said Kollins. But there are some principles that will minimise complications: planning, communication and timing.

“It’s about planning, planning, and planning,” said Gibbs. Kollins suggested “making sure that you’ve put a really detailed plan in place, and you understand who’s responsible for what milestones, and when you want to hit those milestones.”

Gaven Cheong, a partner at Simmons & Simmons, stressed the importance of “transparency and communication with stakeholders” to our APAC audience. “Communication is the key thing,” added Allen. “Having those early conversations with all parties sitting around the table.”

When it comes to timing, Armin Choksey, a partner at PwC Singapore, explained that firms should avoid a year-end switch in provider, to ensure a smooth auditing process. He said, “Preferably, it is done post-audit, in the middle of the year.”, although planning and selection need to be completed well in advance of the transition project.