WHITE PAPER The Business Process Outsourcing Playbook

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1 WHITE PAPER The Business Process Outsourcing Playbook Four crucial questions every wealth business should ask when defining its growth strategy.

2 THE BUSINESS PROCESS OUTSOURCING PLAYBOOK 2 Nearly half of financial firms say their current technology isn t strong enough to support their growth plans. With a multitude of other business challenges to overcome in the wealth industry, technology should not be an obstacle; it should be an enabler. By adopting a business process outsourcing (BPO) service model, you can expect to enhance operational agility, flexibility and, most importantly, receive quantifiable financial benefits. That s because specific tasks and functions are handled for you, freeing you from the resource-intensive requirements of managing such an infrastructure empowering you to shift your focus toward delivering lasting value to clients in a highly competitive buyer s wealth market. Why wouldn t you consider transforming your wealth management operations in the same way? In this playbook, we outline key market trends and business challenges facing nearly all firms and pose crucial questions you should be asking when defining a growth strategy for your wealth business. Many financial institutions across the industry have shifted their perceptions and migrated away from the lift and shift outsourcing approach to one that extends well beyond the advantages of costefficiency. Technology and services provide processspecific capabilities that help wealth managers drive innovation and achieve better outcomes for their businesses. Even the largest financial institutions around the world are seeing their sourcing strategies through a fresh set of eyes. Six Key Trends Driving the Buyer s Wealth Market The evolving wealth market is shifting business imperatives, compelling financial institutions to seek new ways to accommodate a buyer s market. Low-cost marketplaces are pushing down fees, driving the need for greater operational nimbleness. Taking a holistic view of your wealth servicing means identifying the outcomes required from outsourcing at both the macro and micro levels as a means of supporting your firm s strategic business plan. Margin pressures and rising operational costs aside, other critical business imperatives continue to drive the outsourcing approach. A rapidly changing technology landscape, increasing competition from traditional and non-traditional providers, and the need to show clients a 360-degree view of their wealth are creating the need for a fully integrated platform with digital capabilities. Business Imperatives in an Evolving Wealth Market Changing demographics Biggest generational shift of assets Need to show clients a 360-degree view of wealth Threat from non-traditional providers Higher intensity of competition Rapidly changing technology landscape

3 3 THE BUSINESS PROCESS OUTSOURCING PLAYBOOK 1. Changing demographics According to a study by the Federal Reserve Bank of St. Louis, it s estimated that there are currently 35.5 million workers aged 55 years and older making up 23.1 percent of the U.S. workforce. 1 Meaning, older workers will soon leave their respective financial institutions, taking critical knowledge and backoffice experience with them. Meanwhile, a new generation of investors is in the driver s seat with a whole different set of demands who think differently about advice as they bring modern attitudes and expectations to the wealth management industry. Technology will play a critical role in responding to opportunities to expand distribution channels and restore margins. 2. Biggest generational shift of assets An aging population led by baby boomers is driving the biggest shift of assets in history, with nearly $30 trillion transferring over the next several decades. 2 Despite this, only one in 10 consumers expect to receive a wealth transfer in their lives. 3 This disparity is likely due to a lack of understanding of what constitutes a wealth transfer; for example, nearly 80 percent of baby boomers own property that will likely be passed down to younger generations. Although a transfer in wealth should be a boon for advisers, they must change their models to more easily connect with these younger investors. 3. Need to show clients a 360-degree view of wealth Many firms service all aspects of wealth management, from banking and brokerage, to retirement, trust and wealth. An objective of any firm is to build and nurture client relationships across all these areas. The key challenge many organizations face is showing a holistic view of a client s holdings in one portal or dashboard. Regardless of what underlying systems a firm utilizes to maintain and account for balances, clients believe that if they re buying multiple products from one provider, then they should be able to see them in one place. Consolidated reporting will not only address this requirement, but will also improve client engagement and deepen relationships.

4 THE BUSINESS PROCESS OUTSOURCING PLAYBOOK 4 4. Threat from non-traditional providers Even though the wealth management industry has always been competitive, new advisory models are quickly emerging to serve the next generation of clients. The entry of digital or robo-advisers is making the market even more competitive. Robotic technology and artificial intelligence are allowing firms to more effectively manage mass affluent clients and attract millennials through digital advice. S&P Global Market Intelligence estimates that the total amount of assets managed by robo-advisers could grow to over $450 billion by Compared to traditional methods, this client engagement model is nimbler, more cost-effective and allows for the development of a relationship early in the wealth life cycle, positioning the adviser to maintain the relationship as it grows. 5. Higher intensity of competition Firms are feeling increased competitive pressures from new digital entrants and a changing client base, causing them to be more aggressive on fees, forcing margin compression. Some firms are realizing success by expanding products, bundling services and recovering margin by building larger client relationships. Firms of all sizes are removing barriers by effectively creating a digital presence that allows them to be open for business 24/7. In particular, increased access to previously out-of-reach services and solutions designed to effectively cater to the end client is giving smaller firms a boost in their ability to compete with larger competitors. 6. Rapidly changing technology landscape The infusion of new consumer technologies has rapidly changed how firms interact with their clients, causing many organizations to question if their current platform can meet these requirements. Research shows that 77 percent of American adults own smartphones, 5 increasing the demand to access information anywhere, anytime and on any device. The result is a shift toward platform-based solutions to reduce the cost of interfacing and reconciling disparate systems. The move toward customizing aspects of a platform continues, allowing for differentiation and delivering higher quality service while becoming more operationally efficient and technologically nimble. Connect Anytime, Anywhere Over 70 percent of U.S. consumers bank interactions are digital (online or mobile). Bank interactions in the past 30 days 3 : Mobile 40% Online Branch ATM Telephone 6% 12% 10% 32% The Four Questions Every Wealth Business Needs to Ask By asking and answering the following four questions, wealth organizations will be able to develop a more refined and comprehensive BPO strategy that supports their business growth. 1. What are the gaps between our firm s growth strategy and our ability to deliver? Most financial institutions base their strategic plans on growth organic, through acquisitions or a combination of both. As executives consider specific tactics necessary to support these growth objectives, they need to consider alternative sourcing options. Thinking creatively and working with an outsourcing partner can reveal capabilities that support many different growth tactics. A financial institution may want to vigorously pursue a new line of business but may lack the operational expertise to service the business. Or, it may hesitate to add the support staff required to ramp up the business. A vendor familiar with all aspects of outsourcing selective and full-service asset servicing operations can supply subject matter experts on a variable basis. This allows the financial institution to develop and scale up operations quickly, as well as easily adjust in the other direction should market conditions change.

5 5 THE BUSINESS PROCESS OUTSOURCING PLAYBOOK Growth through acquisition is never an easy process. It requires a financial institution to consider temporary resources to ease the consolidation of two disparate operations. Operational or business processing outsourcing can assist in many facets of an acquisition, merger or consolidation. Operational experts can be leveraged to design a future, consolidated end state based on best practices, including advances in workflow and automation. Whatever the institution s growth strategies, the variable expertise offered by a BPO partner can help firms realize topline benefits while avoiding fixed expenses. 2. What processes do not add value or allow us to differentiate the client experience? All organizations need to assess their front, middle- and back-office operational model to determine which activities provide unique value to their customers. During the assessment process, executives should also identify the tasks that don t allow for differentiation or offer the ability to charge a premium price. Any activities that don t add value and personalization to the client experience are prime candidates for outsourcing to reduce cost, increase scale, remove key person risk and mitigate operational risk. Common operational tasks and business processes can be delivered easily by a third party, if the third party has the expertise and technology to support the task. Few providers can help wealth management and trust organizations address transactional activities while also providing access to data efficiently, with superior customer service, reconciliation and process oversight. Firms are best served to engage with a partner that can handle entire client and transactional life cycles. Selected providers should have a proven track record of helping financial institutions transform their service models with partial or full outsourcing empowering organizations to rightsize their operating model to improve the client experience and shift to a more predictable cost model, enabling firms to focus on growing the business. By managing commonly outsourced back-office functions (including custody, accounting, mutual fund processing and middle-office functions such as trade services and data management), outsourcing ultimately provides wealth organizations with flexible, scalable models that meet current and future business needs and growth. Key Considerations When Assessing an Operating Model Insourcing Control over all functions and resources Ability to customize Higher cost and limited scale High level of key person risk Limited depth of knowledge within operating teams Partial Outsourcing Ability to customize solutions to meet business needs, allowing focus on core competencies Control over processes where you offer differentiation Moderate cost benefit Limited scale with insourced functions Still subject to key person risk and limited depth of knowledge Full Outsourcing Least costly option Deeper subject matter expertise allows for organizational focus Benefit from service provider investment Limited control Requires disciplined governance and oversight model

6 THE BUSINESS PROCESS OUTSOURCING PLAYBOOK 6 3. How can I reduce the cost and risk to my operations and new business requirements? Many, if not all, firms desire to provide exceptional customer service as a strategy to differentiate themselves from competitors. Meanwhile, increasing regulations, operating costs and back-office requirements continue to drain the very resources financial institutions need to focus on strategic initiatives designed to drive growth and profitability. As more capital and resources are diverted to growing regulatory demands, firms are considering migrating both selective core and non-core operations to trusted third-party vendors to help them control risks, provide technology solutions, optimize system uptime, ensure reliable processing and utilize internal resources more strategically. Providers who can successfully reduce your firm s regulatory risk also are able to strengthen the value you deliver to your clients by enabling you to redeploy resources who are knowledgeable about your core business and the clients you serve. Regardless of the size, type and location of a financial institution, many firms will underpin business strategies with outsourcing models to help address complex regulatory requirements. Because security issues are closely tied to regulatory risk, they need to be minimized by carrying out proper due diligence on suppliers facilities, technology and operating procedures. In addition, they should also include the appropriate audit provisions in the outsourcing agreement permitting the wealth manager to continue to audit them on an ongoing basis. 4. How can I best align our resources to meet fluctuating market conditions and demand? Overall, asset and wealth managers are nervous about their technological and operational ability to support their growth objectives. Based on a recent FIS survey, 6 nearly half (48 percent) believe their technology is not strong enough to support growth objectives. The results are equally concerning regarding operations, where 47 percent believe their operations cannot support their planned growth. This is driving financial institutions who are considering outsourcing some or all of their business processes to thoroughly evaluate those business activities that tend to have dynamic and unpredictable volumes or costs. As a result, firms will seek to implement new operating models by outsourcing processes that lack scale, are subject to key person risk, or do not deliver a competitive advantage. Furthermore, unless firms are large enough to develop and deploy interchangeable resources that can be moved between functional areas, they will need to explore alternative opportunities to better support relationship management efforts and growth strategies. In these cases, the right partner should be able to provide flexible technology deployment options, a variable pricing model, and the staff needed to meet market demands. Leveraging an outsourcing provider who brings a platform solution can also address the technology challenges of a changing market. Many firms juggle resources between maintaining an existing infrastructure to solve regulatory and basic market changes versus planning for the future. Growing emphasis is now placed on the importance of managing regulatory risk, especially for firms offering wealth or retirement services. As a result, third-party specialists must be able to offer the security, scalability, global expertise, technology and local presence to help firms reduce complexity, minimize operation and regulatory risk, and focus on increasing profitability.

7 7 THE BUSINESS PROCESS OUTSOURCING PLAYBOOK Summary The wealth management industry continues to grow; however, more importantly, it is evolving faster than many organizations are prepared to handle. As market growth potential increases, so will the number of non-traditional competitors seeking market access. Traditional wealth service providers are stepping up their game to retain clients and attract new business, while non-traditional newcomers are luring millennials and other tech-savvy investors with digital offerings. Firms that can reposition their operational capabilities will better empower themselves to capture larger shares of the market. Fast-growing companies have already moved past the need to do everything in-house, either fully or selectively outsourcing activities that do not allow for differentiation or add direct value to the client relationship. This type of model provides a solid foundation to run operations efficiently, allows time to explore emerging technology, and helps differentiate the customer experience all key business components to run, connect and grow a successful wealth management practice. Sources FEATURE/ /the-great-wealth-transfer-is-comingputting-advisers-at-risk FIS U.S. Consumer PACE Report 4. Forecast-AUM-To-Surpass-450B-By-2021.html FIS Readiness Report The Hunt for Growth Across Asset Management

8 About FIS FIS is a global leader in financial services technology, with a focus on retail and institutional banking, payments, asset and wealth management, risk and compliance, consulting and outsourcing solutions. Through the depth and breadth of our solutions portfolio, global capabilities and domain expertise, FIS serves more than 20,000 clients in over 130 countries. Headquartered in Jacksonville, Florida, FIS employs more than 55,000 people worldwide and holds leadership positions in payment processing, financial software and banking solutions. Providing software, services and outsourcing of the technology that empowers the financial world, FIS is a Fortune 500 company and is a member of Standard & Poor s 500 Index. For more information about FIS, visit About FIS Wealth Outsourcing As a global leader in financial services technology for more than 50 years, FIS offers industry knowledge and technical expertise to deliver innovative outsourcing services that can help firms of any size reduce costs, improve performance and enhance the customer experience. FIS award-winning, end-to-end wealth management solutions allow you to move to a variable-cost model with the confidence that your operations are managed securely, efficiently and profitably. twitter.com/fisglobal getinfo@fisglobal.com linkedin.com/company/fisglobal 2018 FIS FIS and the FIS logo are trademarks or registered trademarks of FIS or its subsidiaries in the U.S. and/or other countries. Other parties marks are the property of their respective owners