Outsourcing by private banks is nothing new but, with the pressures of new broader regulatory and capitalisation legislation, private banks are working even harder to reduce operational costs.
SEI Wealth Platform (SEIC), a management solutions provider, said it is currently talking to 16 private banks and wealth managers who are looking to farm out back-office operations.
SEIC has reported major levels of interest from firms with between 5 bln stg and 15 bln stg AuM – the middle tier of wealth management professionals.
Meanwhile, finance house, Equiniti, which provides technical solutions to 70 pct of FTSE 100 companies, report an almost 500 pct increase in the number of groups within the sector looking to outsource a variety of back-office operations.
The main causes for operational review in this area are, the imminent introduction of MiFid II – scheduled for January 2018 – new EU legislation regardless of Brexit, and the ever moving introduction of new technology; where the notion of disruptive communication strategies has firmly taken hold, and left many-a-corporate determined not to be left behind.
With their hands well and truly occupied dealing with new regulatory legislation a number of private banks and wealth management divisions see outsourcing as a valid strategical choice.
This initiative is being taken in the midst of decreasing industry revenues; according to wealth consultancy, Scorpio Partnership’s Global Private Banking Benchmark, operating income across across 200 global wealth managers grew by an average of just 0.04 pct last year. Estimates suggest that compliance cost alone accounted for 4 pct of revenues during 2016.
Meanwhile, profit margins have also tumbled over the last decade by a third, as investors demanded lower and lower management fees.
However, the counter argument around outsourcing remains pretty much the same; concerns around privacy and security issues pervade within some cliques – while other insiders claim that outsourcing allows gifts wealth managers with the opportunity to spend more time, and less money, focusing on core competencies.