Fund managers must have the right people running their outsourcing services if they want to maintain their distribution relationships with financial planners.
“Financial planners are looking for the quality of the service they receive from fund managers. If this drops, then they look elsewhere,” says Mercer Fund Management Services principal, Peter Worcester.
Fund managers must have the right people running their outsourcing services if they want to maintain their distribution relationships with financial planners.
“Financial planners are looking for the quality of the service they receive from fund managers. If this drops, then they look elsewhere,” says Mercer Fund Management Services principal, Peter Worcester.
Indeed, quality of service was a prime concern in a recent Mercer survey on outsourcing within the fund management industry.
In the survey, 80 per cent of the respondents gave the quality of service the highest priority, Worcester says.
“The result can be interpreted as the fund managers perceiving there is a prob-lem with the quality of service being offered today,” he says.
The survey attracted a 50 per cent response rate. The funds under management of the respondents totalled about $300 billion.
Worcester says all the major fund managers responded, which means the survey is a good consensus view of the industry.
The managers were asked to rate their responses to outsourcing several services and to say what their plans were.
Most fund managers already outsource custodial services. Most of the 20 per cent who do not, have in-house custodial services instead, which according to Worces-ter, makes it not cost-effective to outsource.
IT support already is outsourced by 38 per cent of managers. “This is because it is an on-going service that requires more and more expert outsourcing,” Worces-ter says.
When it came to IT development, the survey found that 45 per cent of fund manag-ers were looking at outsourcing this part of their business.
Nearly half of fund managers already outsource administration and unit registry. However, the customer service part of administration is usually kept in-house, Worcester says.
Fund managers do not want people external to the company dealing directly with clients. “There is a fear that a call-centre operator might not get the corpo-rate message across and fund managers dislike the barrier of an outside person between them and their client,” he says.
“Yet, fund managers are happy to outsource services like unit registry, which often has direct contact with clients.”
Worcester believes that as fund managers see outsourced administration service levels reach the quality standards they are looking for, more will seek external organisations. He says there has to be more links established between areas like call centres and unit registry to ensure service quality is maintained at both operations.
Services like unit pricing saw oursourcing coming in at about 50 per cent. How-ever, 40 per cent of respondents said they would never outsource this service.
Worcester says unit pricing is an area where outside expertise could be of a great advantage to the fund manager.
“Mistakes in unit pricing are expensive – subjectively, such as negative market perceptions, and objectively, such as the costs of compensating unit-holders for errors,” he says.
Most of the survey’s respondents said they would keep product development in-house and not outsource.
Worcester believes many fund managers do not value specialists that are brought in from external firms to advise on product development.
Most managers said they did not outsource distribution, but Worcester says many actually do in an indirect way through master trusts.
Most master trusts today have a selection of managers and this is a form of out-sourced distribution, he says.
“However, managers are not getting outside help to distribute their products di-rectly, although advisers are often brought in to help solve distribution prob-lems,” Worcester says.
Adding all the responses together for all categories of service, the survey found fund managers outsource, on average, about 50 per cent of the services.
This is not surprising to Worcester, who says fund managers really like to con-centrate on their core business.
“Fund managers like to run the investment side of the business and the market-ing, after that they are quite prepared to outsource,” he says.
“However, the exceptions are the larger financial services organisations like AMP, National Mutual and NAB, which have many of these services in-house.”
