One of the advisors I work with recently started looking for a new outsourcing solution, only to realize that a lot of factors need to be considered before choosing a vendor.
In my experience, search and selection can go one of two ways:
1. An advisor can look at the most popular systems in the market, see some great demos, maybe attend a conference or two and pick a vendor based on price.
2. An advisor can determine all requirements up front and use that list as a screen in the selection process in order to pick the system that best meets the firm’s needs.
Sometimes you can get lucky using the first approach, but remember: luck is not a strategy. To ensure better business results, it is always better to put the effort up front in determining requirements and success metrics than to leave these to chance.
Room to grow is crucial
Wealth management is an inherently difficult business to scale.
Look at the largest wealth management firms and they can reach up to $10 billion in AUM. While this is the top of the wealth management spectrum, it is only the bottom end of the mid-market for asset managers.
Growing to this point is hard enough. Advisors make it more difficult by making poor technology purchase decisions or not investing in technology at all.
One of the first scaling decisions firms should come to terms is whether they should outsource their back office accounting and client reporting systems – and if so, to what degree.
The good news is that advisors have lots of choices in outsource providers. The bad news is that advisors have lots of choices in outsource providers, making the decision process that much more complex.
Adding to the complexity is the fact that outsourcing of the back office is no longer an all-or-nothing proposition.
Services are being decoupled from platforms, giving advisors the freedom to pick vendors and build up in-house services to create a configuration that best meets their needs.
For example, firms can now choose data aggregation and reconciliation services that are independent of front-end software solutions and each other.
Data providers such as ByAllAccounts provide data aggregation independent of software and we are used by more than 40 of the industry’s top outsourced providers.
We consider ourselves an Infrastructure as a Service (IaaS) company that firms can use directly — or indirectly when we are embedded in a solution provider’s application.
Likewise, third-party reconciliation firms such as Accusource, BReady and Empaxis offer reconciliation independent of a software provider and finally, firms such as Taramac, Orion and Black Diamond can offer firms full soup-to-nuts back office outsourcing solutions.
Enter the Cloud
The best choice for your firm depends upon your needs and core competencies.
There is a lot of buzz about moving to the cloud and these vendors provide very tangible benefits over tradition client-hosted solutions where the firm itself installs and maintains the servers on which the software runs.
If you have a stable and efficient back office, then perhaps you will only need to consider the hosting the software within an offsite cloud data environment.
Even here, hosting arrangements can range from Application Service Provider (ASP) to Software as a Service (SaaS).
Normally I stress there is no one right answer when it comes to technology, but when a firm is considering upgrading technology, the principals should strongly consider a SaaS provider.
SaaS providers are responsible for all hardware and infrastructure, so the vendor is the one responsible for ensuring the solution scales to your needs as your business grows.
Cloud-based hosting companies are also responsible for maintaining the software and performing upgrades.
You will always be on the latest version. They can do all this more securely than 99% of the RIAs out there can do it on their own, and you have one less critical piece of functionality that you have to worry about in your disaster recovery plans.
If you are upgrading your technology and are not moving to a cloud-based solution you should step back and consider the potential limitation of this decision.
Your back office accounting and client reporting systems should met your current needs and the needs of your firm at least five years out.
Whether you outsource the reconciliation function is still open for debate, but the benefits of the cloud are no longer controversial.
Advisors should openly adopt the SaaS model and seek vendors that have a history and install base that uses this model.
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