After identifying best-of-breed outsourced providers, they need to be managed as any risks that may be faced require ongoing monitoring by the business. This becomes part of the day-to-day operational process.
Good practice
There are a few general hygiene factors to consider upfront. It is essential that before a new partner is appointed, due diligence is completed; an ongoing monitoring process is set up; regular meetings and service level agreements are put in place and ensure that their business can accommodate our growth. Additionally, even though you are the client, it is important to have a relationship manager within the business to oversee outsourced providers. This frees up other resources to focus on the key business functions.
Key attributes
Because we want only the best-in-class skills, there are a few considerations that should be reviewed before bringing anyone on board as an outsourced service provider:
- Do they have expertise in your type of business? This could refer to their years of experience in the financial services industry as well as the size of businesses that they have worked with. For some outsourced functions, specific financial services experience isn’t necessary but for certain functions it is imperative.
- Who were or are their other clients? Does this service provider have the relevant experience that your business needs based on previous clients? When considering their current client base, also consider if there are any potential conflicts. This could be as serious as a conflict-of-interest issue or even a commitment they have made to prioritise a particular client’s work.
- Depth of experience: here, we need to understand how long the service provider has worked in their industry, which industries their team have experience in, the number of years of experience and the size of the team. This speaks to technical knowledge in their own field.
- Investment in technology and systems automation: it is important that we gain an understanding of their IT infrastructure. Are their processes automated or is everything run manually?
- Appropriate online security systems, backup systems and disaster recovery systems.
- Regulatory compliance: financial services regulated outsourced providers must be approved by the FSCA. They must have teams that can guide your business when it comes to launching products and services to your clients as well as reporting. It’s also important for non-regulated service providers to understand the regulatory environment of financial services, which continues to get more complex.
- Reporting abilities to clients: this entails evaluating if providers are able to produce, at a minimum, standard industry reporting as well as bespoke reporting as and when required by end clients.
Keep an outsourced team in place ensures longevity, availability and capacity is always accessible.
Key Benefits
As smaller businesses, we don’t always need these functions on a full-time basis. Using an outsourced model can have cost benefits; however, the true benefit is that a small business can have access to the best resources, when needed, making the business operationally scalable and robust.
As the business grows in size and complexity, we can also tap into additional resources. This can be additional resource hours, having extra hands available during peak periods or even onboarding a different skill within the industry.
The other advantage of this model is that it makes it easier to access very specialised skills for a short period.
Red flags
- Inadequate experience of key service providers.
- Non-regulated, non-registered providers.
- A shallow team, no cover if your primary contact is not available.
Outsourced functions
There’s no need to limit which functions are outsourced and which are performed in-house. However, it is worth noting that at some point it may be more logistically and economically feasible to bring some resources in-house, although keeping an outsourced team in place ensures longevity, availability and capacity is always accessible.
These outsourced providers could be legal, compliance, finance, a trade execution team, IT, fund administration, marketing, HR or personal assistants.
The outsourced model can work for smaller and large businesses. The decision to outsource or bring functions in-house must be based on business needs and circumstances. The concept can be applied to any size of business; although there is no cookie-cutter solution, it is important to consider what your business needs are and then strategically decide what needs to be managed in-house or out.
Lodestar Fund Managers (Pty) Ltd is an authorised financial services provider, FSP 49808. All relevant disclaimers available on the Lodestar website.
