Jon Ambos: The technology component is important, as in the past, if a firm has run all their own instances of technology, then they would have to go through all the upgrades. This would take time away from people to focus on business continuity.
Having the right partner allows us to focus on our core competencies, and not worry about the latest upgrade to Oasis or Charles River. Yes, we still must run tests and evaluate impact, but this is much less time consuming than doing the whole upgrade in-house.
The focus can be on how we work with our partner to add the right components into a new platform, whilst making our organisation more efficient. It is about demonstrating how we can add value.
Jon: It is situationally dependent, and it is not right for everyone.
A lot of the debate is around having the right planning and rationale for outsourcing. For example, do we want to spend our resources on staffing and technology, or do we want to spend it with a partner who can help us to get to market faster?
Outsourcing may not save you money, certainly not in the short term, because you may be supporting a legacy system and outsourcing simultaneously. Over time, however, you can manage your costs better with an outsourcer.
"People have proven we can work remotely, and therefore outsourcing staff
who may be located elsewhere, is now seen as viable."
Having an old legacy platform is a big trigger for firms to outsource, but it is a mindset. Some are loyal to their staff and what they want to do, but you have to be open to all the possibilities and where outsourcing can make sense.
I cannot say that there is one trigger, but firms must evaluate regularly, to see if outsourcing makes better economic sense. It may not even make sense right now, but as new products arise or staffing issues happen, it is important to revaluate.
Covid has changed things, people have proven we can work remotely, and therefore outsourcing staff who may be located elsewhere, is now seen as viable.
Jon: It does depend on your business, as everyone has their own take towards their target operating model. When I was an outsourcer, I wanted to do everything, but I understood that I might not have been the best at everything.
The key is data, ensuring its coherence and its relevance across the entire business operating platform. The governance around this data is also key.
If you have more components and you pay more to an outsourcer, then you will have a little more of a say in operations, particularly if you are a larger firm. As a smaller firm, you will not have the same clout, so changing providers is tough. These smaller firms must demonstrate that it will benefit all their clients, or most of their clients, to get something on the road map.
"The key is data, ensuring its coherence and its relevance across the entire business operating platform."
I would mention with regards to regulation, being from an insurance firm, that we are subject to a lot of regulations and reporting requirements. By having the right partner, we don’t have to build for them. Our partners are building these reports for us because they are used across all their insurance clients, which brings in the aspect of scalability firms cannot achieve alone.
Our outsourced partners sit on all the industry committees, so they have great insight and industry awareness. Which, again, is something individual firms would struggle with.
Jon: The key is the quality of the offering, which I am going to speak to my peers about. Many will put on a beautiful sales show and demonstrate all the functionality. But having the proof of concept based on your results is a different matter entirely.
Firms may want to talk to their other clients about their data integration and time to market experiences. Data integration is a key demonstrator of capabilities. Some integrations can be done overnight, others could take a year or more, so understanding how the outsourcer can facilitate this is important.
"The key is the quality of the offering, which I am going to speak
to my peers about."
You also want to understand how they are staying current with regulation and change in the marketplace. You want to look at whether they made the required technology enhancements on time. Did they have any issues? Did they stay current on the regulatory reporting that firms need? How often do they do upgrades?
I spent some time consulting at PwC, and we looked at this when we evaluated different providers.
Jon: It depends on what you are outsourcing and whether it is heading an account to an existing feed or if it is something new, which will take longer. You must be reasonable and work with your partner on what these are.
I can add a new account on my trading system immediately and on my accounting system overnight, but if I haven’t submitted all the documents to set up a new account, this is on me. There is onus on the asset manager, hedge fund, or insurance company to provide all the right information in the right format. There are different requirements across the different vendor partners.
The complexity is also important. Are the firm trading only in the US? Or are they setting up global markets? This is important, as global markets take longer to set up for clients.
Jon: You want to have them, but you don’t want to be inundated with them. In the past we have had clients who had 40 pages of SLAs. It took us a month to report on them. Overtime, however, the list always shrinks down to what is really important.
"The SLA should be around things that are financial and reputational. It is supposed to help all parties work together."
Sometimes stuff happens, so if you have a good relationship with your service provider then you can work together to find a solution. The SLA should be around things that are financial and reputational. It is supposed to help all parties work together.
Jon: Once you have the buy in of the senior teams, you also need champions from each of the departments who will be working with the senior teams. If I am outsourcing trade support, I need someone there who is the proponent of it. Yes, they may displace some people, but if I find a champion who is engaged, who wants to work on this and make sure that it is smooth, then the transition will likely be successful.
Sometimes the legacy technology is so stale, that if you can get someone who is excellent at using the new technology to show how it can help people in their day-to-day jobs, this can be a turning point.
Not everyone is going to buy-in. In my firm, we have lost some people who have been with us for 25 years, because they did not want to go through a change. It does happen. You don’t want to lose people but unfortunately, sometimes you do.
Jon: Using outsourcing is a mindset, so you must be open to everything that comes with it. There are certainly differences in providers and services, but at the end of this, you must have buy-in across the board.
At the start, I had the view that providers were simply a vendor, get the job done and this is what I want. Then I realised, overtime, that these providers are actually your partners, and so you have to work with them to maintain a good relationship and get the most you can out of this service.
Jon: I do not believe that this is specific to functions, as a lot of this is data driven. Blockchain would seem to be the next big thing. Blockchain would allow you to input data once, and then share it from your custodian to your trader.
These types of things will help in automation, I don’t know that you are ever going to get full automation, but technologies are currently and will continue to improve the process slowly and innovatively. There is a life cycle to all of this. If you think about when derivatives started compared to their frequency in use now, it has taken a long time for them to get here.
