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Wealth Management 2005 from
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Outsourcing
" By Chris Eaton
Itex
‘Despite measured market recovery, the private banking sector now faces two new major challenges. First achieving top-line revenue growth and improving the overall client experience is now back on the senior management agenda after a period of cost containment.
‘Second, ensuring a more agile and cost-effective operational platform is now a greater challenge as it needs to address both the increasing complexity of changing regulation and the evolution on new products and services.’
It this later point, made in the excellent IBM report entitled The 2005 European Wealth and Private Banking Industry Survey, that is so relevant to our experiences in Jersey.
Outsourcing has become so demonstrably beneficial that more than 75% of US Fortune 500 companies now outsource some aspect of their business support services. The mix of processes selected for outsourcing includes almost all the value-chain functions.
For any organisation the decision to outsource is based on first identifying the core of the business, that which must never be outsourced, and then establishing that which could perhaps be done better and cheaper by an external party.
In the case of wealth management it’s possible to make a case to outsource solutions for securities operations, investment accounting, trust operations, employee benefit recordkeeping, investment programs, financial planning, marketing, training, risk management programs, and perhaps even more.
This would deliver a core of sales and client service, with a strong focus on building relationships and growing revenue.
As banks focus on the processes of value creation they are they are now looking more systematically at each component of their organisation to determine which can best be shared or outsourced.
The Survey of 96 leading banks asked which areas of their operations they currently outsource. Of the seven most popular, IT operations and IT maintenance and support were in the top five along with custody, investment research and settlement.
However, this does not necessarily equate to saying that IT is the function identified as the least likely to deliver competitive advantage. Instead, a deeper analysis of the data behind the IT outsourcing statistics reveals an observable trend of smaller contracts, indicating selective outsourcing of specific IT and back-office functions rather than necessarily handing over the entire IT department to an external supplier. McKinsey’s Autumn 2005 survey What Global Executives Think about IT and Innovation provides more insight into the impulse to outsource IT. Their research demonstrates that whereas over 80 percent of IT budgets are spent on operations and maintenance, only ten to 20 percent is allocated to the important projects that actually improve overall business performance. With so much invisible spend, it is little wonder that non-tech executives are frustrated about the perceived contribution made by IT to the business.
Retaining strategic IT, while outsourcing the drudgery of operations appears to be the key to successfully delivering value out of what has historically been a cost-centre to wealth management business.
This approach reflects the lessons learned from a decade of remorseless outsourcing: a desire for flexibility through the retention of core IT strategy and the associated ongoing development of competitive advantage, while striving towards delivery of the outsourcing promise.
Itex provides selective IT outsourcing for over 7,000 users across the Channel Islands.
Today the company unveiled SystemWatch, a suite of service plans designed to relieve the pressures of day-to-day operational IT, at Technology Strategies for the Offshore World – a major technology strategy event held at the Grand Hotel in St Helier.
Copies of the IBM 2005 European Wealth and Private Banking Industry Survey are available on request from Itex.
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