Keeping It Fresh and Fragrant

Written by Jonathan Clark on

It's essential for asset managers to keep the relationships with their key suppliers fresh and fragrant. Almost all relationships start with the best of intentions. Any relationship, such as that between an asset manager and an outsource service provider, will not have been concluded swiftly or painlessly from a contractual perspective, even if the initial introduction between the parties might have been a bit like speed dating. A massive and concerted volume of contracts, plans, service level agreements, key performance indicators, volume assessments and so on will have been produced by a crack team once the initial attraction was identified.

The secret, as always, is to keep working at it, ensuring that the relationship doesn’t become stale or lazy once that crack team has moved on to the next project. After the initial fears over the lift-out or the transition to a new system have been dealt with and the problems gradually ironed out, the real long-term benefit to both parties is in ongoing refinement and improvement of the operating model. This should occur on a regular or even continual basis, to keep on top of business change and how this affects the relationship. The longer the relationship works well for both parties the greater the benefits to all (and the better the payback on the initial investment made by both parties).

As an outsourcing agreement goes through its lifecycle, the balance of power in that relationship shifts. It generally starts off in favour of the asset manager, in that there is usually a commercial reason for the firm to outsource a particular process or function. The outsourcer will often give a discount off its standard rate-card to secure the deal and in the first few years they sometimes make little money from the arrangement. As time goes by, high cost service enhancements stemming from changes to the asset manager’s business will begin to move the pendulum in favour of the outsourcer and make it harder for the asset manager to migrate away.

The potential loss of key staff and skills can make the asset manager more vulnerable over time. Through analysis of resilience risk, oversight risk and exit planning, the asset manager can help to redress this balance and also improve the relationship with the outsourcer as a whole, thereby restoring trust.

Human nature being what it is, asset managers need to review their outsourcing arrangements on a continual basis. Ideally, a dose of independence can help in both freshening the relationship and ensuring that the levels of both resilience (especially in terms of where the business might be now and where it is going), and oversight (given refinements, volume changes, changes in geographical emphasis or asset class) are regularly monitored and assessed.

The key here is transparency: there has to be transparency on both sides of an outsourcing agreement for it to be successful in the long term.

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