Outsourcing has long been used as a way for companies to minimize costs and maximize efficiencies. However, one market where outsourcing has been less common, particularly in Canada, is the financial industry. But that may be changing, according to a recent research by State Street.
According to State Street’s report, Managing Complexity: Leveraging Opportunity Through Outsourcing in Canada, Canadian asset managers are turning to outsourcing as a way to cope with increasingly difficult operating environments. Complex regulatory requirements, low investment yields and a push to develop and send new products to market have meant asset managers must refine their focus—and outsourcing is one way to enable this.
“Canadian asset managers are facing increased pressure to focus on their core competencies—driving superior returns, generating innovative and differentiating products and distributing those products to the marketplace,” said Kevin Drynan, senior vice president and managing director of State Street’s Global Services business in Canada.
“Against a backdrop of an evolving regulatory environment, clients need advanced technology and infrastructure to support their back office operations. Outsourcing helps fulfill that need. ”
The report refers to the “double bind” that asset managers are facing, in which growing complexity in the industry is creating huge distractions for managers—and at a time when they need to focus more than ever on their core function of driving returns for investors. To top it off, managers are facing increased demands for transparency from both regulators and investors.
The bulk of survey respondents (nearly one-third) said the ability to focus on core competencies was the primary driver behind their decision to outsource. Other drivers included fund accounting, scalability and increased variability of costs, improved functionality, cost savings, access to advanced technology, compliance and regulation, and bundled solutions.
Drynan points out that agility and speed to market are two key factors that will encourage asset managers to consider outsourcing. “Those asset managers that can nimbly adapt to changing market conditions will be better positioned for success.”
Traditionally, outsourcing has been met with resistance by many organizations because they feel it represents a loss of control, and there’s a sense that “this is the way we’ve always done this,” says Drynan. “But moving forward, with the prolific change we’ve seen in the marketplace, the status quo won’t be good enough.”