Category: Compliance, Creating Future Value, Industry Trends, Smart Sourcing

To Do or Not to Do: Executing the Decision to Outsource Compliance Operations

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This blog post is the second in a three-part series about outsourcing compliance operations in today’s complicated financial services environment.

Disruption seems to be the buzzword sweeping the financial services conference circuit this year. While opinions among industry thought leaders are mixed on whether or not we’re actually experiencing an unprecedented volume of disruptive forces, I think most people can agree that executing a plan to outsource any part of your compliance operations has the potential to create significant organizational anxiety. In fact, PricewaterhouseCoopers’ 2015 Global Operations survey identified that “Changing operations to meet the evolving needs of markets, customers or the business” was identified by 61% of respondents as a disruptive factor in their business.

Based on my more than 30 years of experience in the field, I’ve learned that if a firm has conceptually decided to outsource all or a portion of its compliance operations, managing this anxiety requires three steps. These are thoughtfully and strategically (1) making the case for outsourcing within the firm, (2) deciding with whom the firm will work with to deliver compliance functions, and (3) facilitating the transition from in-house to outsourced compliance operations.

Making the Case for Outsourcing

Unless you have unilateral decision-making authority at your firm, you likely need to work with other people to proceed with the exploration of possibly outsourcing all or a portion of your compliance functions. This might be as easy as sharing your analysis of the strategic ROI of managing compliance functions in-house, or it might be as complicated as needing to develop an internal messaging campaign to highlight the potential benefits of outsourcing.

The benefits frequently cited by our clients include:

  • Enterprise scalability increases efficiency, reduces cost, and mitigates risk through standardizing and streamlining operations.
  • Scalability also makes it possible to access best-in-class, dedicated, and specialist compliance capabilities and regulatory analysts, which in most cases is cost prohibitive to maintain in-house.
  • Access to both technology investment and capabilities, as well as analytics capabilities and thought leadership that they couldn’t otherwise justify on their own.

Specific to Boston Financial, which is part of the DST enterprise, we also hear clients speak of the benefits of consolidating vendors with their TA provider, which has the potential to increase the opportunity for “most favored nation” pricing, and reduces the time, cost, and administrative burden associated with vendor oversight.

You may also need to prepare to manage resistance to change, which can include:

  • Corporate culture (“We’ve always done things this way”)
  • Role preservation (“I’ll lose my job if we outsource _____”)
  • Fear of conversion (“I’ve heard stories about conversions being a nightmare!”)

Identifying potential points of resistance ahead of time will help you prepare for them. In my experience, your strategy for managing resistance should ideally include a plan to engage more people in understanding and advocating for the potential change, to help broaden the range of voices advocating for the exploration. In addition, framing the potential changes within the context of your firm’s mission, legacy, values, and commitment to your investors provides a foundation that can be hard to argue with.

Deciding on a Vendor

What makes a great vendor, one that is a strategic ally in the delivery of your compliance program? Our clients say that they want their BPO vendor to understand their business goals and help the firm stay current on relevant industry issues affecting them. They also want a vendor who offers effective relationship management services, and “is easy to do business with.” Time and time again, I hear clients say they also seek a leader in the field. Few firms want to be an outlier in the delivery of their compliance operations, so working with a firm with a proven track record and a history of setting standards for performance is often a priority.

So how do you assess this? I asked our sales support team, who responds to more than 200 RFPs and due diligence questionnaires every year, to identify themes that come up regularly in compliance RFPs. These include proof of:

  • Firm’s longevity in the field/track record of success
  • Firm’s ownership and affiliates
  • Operational scale (e.g., available efficiencies, best practices based on scope of experience)
  • Staff expertise
  • Technology infrastructure, investment, and scale
  • Cybersecurity protections
  • Business continuity infrastructure
  • Risk management infrastructure (e.g., audit, change control)

The process of vetting potential compliance operations vendors is largely directed by your firm’s vendor acquisition processes. We’ve experienced everything from face-to-face meetings coupled with a financial proposal, to complex, multi-layered process that involves RFPs, site visits, and reference checks.

Facilitating the Transition

Contrary to popular belief, once you’ve decided on a compliance operations vendor, your transition process does not need to be lengthy and painful. In the final post in this series, I’ll share lessons I’ve learned for executing a smooth transition and building a foundation for a strong, and long-term relationship. In the meantime, if you have questions, please share them in the comments section below, or send me a message.

 

Craig Hollis

Craig Hollis

Craig joined Boston Financial in July of 2004. Craig has 32 years of mutual fund transfer agency experience in which time he has been responsible for managing numerous operational and support groups including: financial control, transfer agent and blue sky compliance, tax reporting and withholding, intermediary compensation, transaction processing and offshore distribution and servicing. Craig is currently responsible for the regulatory oversight of Boston Financial’s Transfer Agent activities as well as all operational aspects of Boston Financial’s compliance program including a 22c-2 full service solution and Blue Sky administrative services. Additionally, Craig represents Boston Financial in periodic Regulatory Compliance Advisory Group Sessions (RCAG) and is active in the industry, serving on the ICI Transfer Agent Advisory Committee, ICI Abandoned Property Task Force, ICI State Related Issues Working Group, ICI subcommittee on Money Market Reform (Institutional vs. Retail), NICSA Compliance Risk Committee, the Securities Transfer Association and has been a speaker at numerous industry events.

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