Top 6 Things to Look for When Outsourcing Your Wealth Management IT Needs

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The wealth management industry is overcoming a wide range of challenges.

Be it less than helpful macroeconomic conditions (limiting your return-on-investment), surge of competition from so-called fintech players to shifting client demographics (and preferences), a CEO of a wealth management firm has a lot on his or her plate.

From lowering operational costs (and maintaining profitability) to adapting to the expectations of millennials over your firm’s client experience, you’re now looking at outsourcing IT as a solution.

That’s perfectly reasonable, but make no mistake, there is no one specific way to outsourcing IT in wealth management. You will need to tread with care in order to guarantee that your wealth management firm exacts the results you’re looking for.

Based on our experience, here are the top six best practices for wealth management firms to consider when examining potential managed service providers (MSP).

1. Find the Right Expertise

When evaluating MSPs, you must ensure that your prospective partner offers the technology and process services that align with your firm’s operational requirements.

This may seem obvious on first glance, but specific issues — such as whether your MSP actually has the systems (e.g. HIPAA-compliant data centres) and a service-level agreement (SLA) that aligns with your expectations (e.g. response times) and others — tend to get overlooked.

Deloitte states that you should assess the MSP’s “level of experience, inquire about their other clients, and the nature of their existing BPO [Business Process Outsourcing] partnerships.”

2. Guarantee Compliance and Security

Compliance is a constant in the financial services industry, including the wealth management industry. When outsourcing, your compliance requirements now extend — exactly like the data and assets involved — beyond the firm’s traditional or in-house domain.

You must ensure that your MSP complies with relevant regulations, be it local ones (e.g. those laid-out by the Securities and Exchange Commission) or those abroad (e.g. the General Data Protection Regulation: GDPR).

Failure to guarantee compliance puts you at risk of costly penalties from government regulators and, potentially, at higher risk of actual cybersecurity problems (due to weak security controls).

3. Future Proof for Digital Transformation

Not only are wealth managers dealing with a surge of millennial investors, but the reality of the demographic and technology landscape is that it’s in a rapid state of flux. Today, a staggering 67% of millennial investors want software that actively helps in guiding their financial decisions.

You need a MSP that fully understands these shifts and can, with urgency, enable you to readily adapt to them. Be it storing your data on secure and compliant cloud hosting to facilitating your ability to integrate robo-advisors (i.e. machine learning and artificial intelligence), make sure the MSP is ready to help you make it happen.

4. Ensure Your MSP is Financially Sound

You must ensure that your MSP is in sound financial health. Why? Because your MSP must be in good financial health in order to properly invest in the solutions you’re seeking.

You will also be relying on your MSP in ways that could see it manage confidential data. Its finances are a measure of security as well (e.g. ensuring that the MSP is spending enough on the necessary measures to protect your data from cyber threats and compliance issues).

Not only does a lack of funding limit your MSP’s capabilities, but liquidity problems could also put its operations — and by extension, yours — at risk of collapsing (e.g. closure, bankruptcy or selling-off assets/ownership).

5. Ensure Your MSP is at the Right Location

You might be a small-to-medium-sized wealth manager that would prefer its MSP to be in the same locale as your firm. Alternatively, you might have branches in multiple cities, so a MSP that is accessible at those locations is of importance.

In either scenario, you must ensure that your MSP is situated to support your operations. A MSP that is unable to send a IT field support expert to address complex IT problems at your office(s) is of no help to your wealth management firm.

Likewise, your MSP’s location (or operating locations) will also determine its regulatory and legal compliance mechanisms. In other words, location (e.g. New York, Houston and others) could be a way to determine if it aligns with your wealth management firm’s own compliance needs.

6. Overcome the Risks

Certainly, relying on an external MSP has its risks. After all, depending on an external company to manage your critical information systems and, potentially, sensitive data and information is a massive step. Thus, it’s important to take steps to overcome the inherent risks.

Build the Right SLA

You will lose some control in how your IT operations are managed when relying on an MSP. So it’s important to ensure that you have a service-level agreement (SLA) in place to guarantee the availability of critical systems, determine how sensitive data is handled, and other key issues.

Avoid Unforeseen Costs

Ensure that you and your MSP have come to accurate and realistic projections in terms of your potential cost-savings. Yes, the purpose of relying on a MSP is to control escalating IT costs, so it’s imperative that you define your selection of services and the SLA to avoid shocks.

Mitigate Security Risks

Be it your MSP’s cloud service offerings, device/hardware management processes or how it will collect, store and process data, you must ensure that the MSP commits to best practices when it comes to wealth management IT security.

For example, when it to securely managing your clients’ data, you must ensure that your MSP relies on (be it internally or via a public cloud-host) HIPAA-compliant data centers.

It’s evident that you will need considerable support and transparency from your MSP in order to achieve your wealth management firm’s outsourcing goals. Start by examining whether your MSP has experience and expertise for the IT needs of the wealth management industry.

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