Having been involved in multiple middle office outsourcing projects, I always find it fascinating to observe the same beats at each investment management organization—and it’s truly a provider agnostic phenomenon. While the asset manager and outsource provider names may change, during transitions, I’ve observed that successful firms invest in their employees and, in turn, benefit the organization by ensuring that oversight roles are clearly defined within a new target operating model.
Ken Barnet wrote an extremely insightful post at the beginning of 2018, calling out the need for oversight and how to put structure around measuring whether a provider was doing their job well and meeting the expectations of a client’s jointly agreed service levels. Where I have seen the biggest gap is in instances where a firm moves from an insourced environment to a fully outsourced one, with team members moving from ‘doers’ to ‘overseers.’ The fact of the matter is that these two roles require distinctly different skillsets.
So how should an asset manager handle this crucial change in function? Here are a few tips based on what I’ve seen work well.
Define what the role of oversight will be composed of. Spend time reading about others’ experiences (there are plenty of case studies out there for you to consume, given the direction that outsourcing has taken over many years).
Engage your network, specifically people who have gone through this before and attempt to answer the following questions:
Did they retain team members to oversee the new relationship?
Did they lift team members out of their organization and agree to terms with the outsource provider to have them service their accounts under the umbrella of the provider?
What were the biggest hurdles they faced during the crucial stages after the migration cutover took place?
Begin dialogue with each team member within the impacted functional groups. Does the oversight role fit into their overall career plans?
Jointly agree and define a governance model with the outsource provider whereby all success measurements and expected touchpoints are spelled out, providing a foundation for the new operating model within the organization. In other words, what are the expectations for the retained team within the asset manager?
The fourth point above is the most critical, as it will serve as the basis for the new outsourced operating model. The earlier you can engage your provider and define this, the better. From a middle office standpoint, your support team will be moving to an exception based and escalation point of contact. Gone are the days of speaking directly with custodians and brokers regarding an unmatched or failed trade. It may be tough for some on the front lines to fully grasp this change, and many will have difficulty fully letting go. However, the role of the oversight team is an important one and allows individuals to grow and mold their career within an investment manager. This comes into focus for individuals that now have time to get out of the minute details and into managing expectations for the new operations landscape with individual clients and key stakeholders.
In essence, communication is key. Not only with the individual team members within the asset manager that are moving into a different phase of their career and expected to serve a slightly different function, but also with the outsourced provider who needs direction in determining who does what in a target state environment. Asking questions and defining roles early on in the process will prevent confusion and potential disappointment within the team and both sides of the outsource agreement. If managed well, there should be minimal surprises and you’ll get off on the right foot with your new long-term relationship.