The owners of newly-established wealth management firms often outsource support functions, such as finance, operations and human resources (HR), so they can focus on serving clients and growing their business. However, as firms mature and operations evolve, many reverse this decision and start to bring support services in-house.
But how do firms know they have reached a tipping point? When’s the right time to bring outsourced functions in-house? In making these decisions, business owners should consider three key areas – business improvement, efficiency and cost.
1) Business improvement – As firms mature and become more complex, forward-thinking owners opt to run their businesses in a more sophisticated way, which arguably relies on being able to make more nuanced decisions and having access to better management information (MI). Triggers here could include increased size, operational complexity or the move to provide a broader offering (such as wealth managers also offering trust management, personal tax advice and estate planning). As an example, an in-house finance function could provide financial modelling to support strategic decisions such as launching a new office or quantifying the costs and upside of acquiring a new team. This modelling could evolve rapidly as circumstances change, enabling better decision making. Additionally, if you require multi-faceted MI and want to cut data in a number different ways, it can be much easier to do this in-house.
2) Efficiency – When firms get to a certain size and scale, it can be more efficient to partially (co-sourcing) or fully bring outsourced support functions in-house. Co-sourcing often starts with employing someone to direct the outsourced function. This direction can more closely align the outsourced process to the firm’s needs and decision making timeframes. An example of a co-sourcing structure includes employing a Chief Operations Officer (COO) to control the finance, client care and marketing functions internally and to direct certain outsourced operational arrangements such as IT, compliance and resourcing.
The in-house COO provides management insight, enables quicker decision making and scenario analysis whilst the outsource providers robust service continuity and their breadth strategic and operational support necessary for a complex and multifaceted project such as upgrading a CRM system whilst ensuring GDPR compliance. Businesses that operate internationally will at some point want to employ an in-house coordinator to manage different relationships and ensure operations are streamlined.
3) Cost – There will come a time when it may become more cost effective to bring finance and HR functions back in in-house. However, it is important to look beyond the raw cost of employing people versus using suppliers. Having the right staff members within a firm allows for better decision making, and may help achieve more than saving money. It is also important to look closely at how technology can be better used to reduce costs. For example, rather than paying for routine tasks such as recording invoices and expenses these can be automatically scanned and recorded simple, cost-effective applications.
When a decision is made to bring outsourced functions in-house, it is important to be clear about the objectives and expected benefits from the outset. The process should be measured against the objectives a set period down the line; this allows you to establish whether the project has been successful. Do you have access to better management information so you can make better, faster decisions? Are you saving money through insourcing?
Firms which haven’t achieved their objectives in bringing outsourced functions back in-house may still have reached their tipping point. It may just be that better change management is required.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.