Wealth managers embracing outsourcing outperform
Traditionally the wealth management industry has a tendency to develop IT systems in house. The adoption rate for back office outsourcing has remained low, with around 11% of IT and operations costs relating to outsourcing. Our research shows that if they were to start a wealth management firm from scratch now, the majority would choose to outsource many of their operational functions.
In recent years, the industry has been combatting against margin compression and scalability. Failure to manage rising costs has seen the average profit margin slowly decline, despite the success in growing revenues each year, held back by legacy systems, many firms across the industry are unable to scale their business model. When comparing data between firms who outsource against those fully in-house, the outsourcing group have achieved higher asset and revenue growth over the last five years, although their profit margins may be slightly lower, the comparison does suggest outsourcing can support growth and promote scalability.
When making the business case to outsourcers, wealth managers focus on finding a partner that understands their business in terms of both current needs and future goals, as they believe this paves the way for successful partnership. Supported by modern technology that allows for innovative business solutions and scalable business growth, outsourcers aligned to clients’ needs with an appreciation of the demands for ongoing productivity and margin enhancement, can be the key to a more profitable future for wealth managers.