Competing Beyond Size: Outsourcing Boosts Mid-Size Trust Firms’ Scalability
In today’s environment, as boosting revenues and containing costs becomes more difficult, mid-size trust companies face unique challenges to profitability. Increasingly, many of these firms are discovering that a carefully chosen outsourcing partnership can help address both challenges. The key lies in enjoying the significant benefits of expanded scalability that outsourcing allows.
For mid-size trust firms — those with assets under management ranging from $1 billion to $2 billion — the pressure on revenue and costs is growing. Unlike smaller niche players that can leverage their expertise through higher fees, competition among next-tier companies lends itself to a flatter fee structure. At the same time, the
relative size of these firms makes conventionally scalable operations harder to achieve. Thus, cost reduction can be daunting, especially in the face of acquiring, maintaining and upgrading essential technology resources.
Outsourcing’s critical benefits
One solution for overcoming this profitability squeeze enables trust firms to compete beyond their size by joining forces with an outsource provider’s scalable platform. Among its many strategic advantages, an outsourcing partnership may:
• Help align costs with revenues by converting fixed costs to variable costs
• Give rise to future costs savings resulting, in particular, from scaling back investment on IT infrastructure
• Enable long-range vision, by adding future technology initiatives to a provider’s own roadmap, and ensuring the ability to meet future needs when a firm is ready
• Allow for faster growth by providing the on-demand capacity — servers, systems and staff — critical to meeting peak demand
• Help firms gain a competitive edge built around their own core competencies
• Expand a firm’s potential client base, as its now-scalable services become accessible and attractive to foreign, multi-national, expatriate and globally mobile clients, through enhanced multi-base and multi-currency accounting systems, deep staff expertise and wide-ranging investment strategies with complex security types
• Enable firms to seek opportunities farther afield; in contrast to the approximately 40 markets in which many broker-dealers may operate, leading providers may have a presence in more than 100 markets
Enhanced client relationships
An outsourcing partnership may also enhance a trust firm’s profitability through strengthening its critically important client-facing services. By upgrading the quality and efficiency of its operations through accessing a provider’s scalable platform, its client relationships may benefit, too. For example, a provider has the scale that allows for new (and continuously improving) capabilities such as customized reporting, interactive Web-based data access and other data-intensive activities protected by state-of-the-art privacy infrastructure. In addition, a firm can leverage a provider’s overall resources to hone its own core strengths. Optimized efficiency, in turn, can both decrease the risk of failed trades and incomplete settlements, and improve overall trade communications and trade order management.
As the race for growth and profitability among mid-size trust companies heats up, finding new ways to expand their growth becomes more critical to success. For an increasing number of firms today, going it alone is not necessarily the right strategy. Instead, smart outsourcing enables them to leverage the strength, scalability and best-in-class resources of a leading partner-provider.
Trust & Estates, November 2011
