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Outsourcing’s Appeal Grows During Volatile Times

Amid the economic downturn, more and more Wall Street firms are considering outsourcing to cut costs as well as gain access to technology and expertise. But the shaky economy requires firms to do more outsourcing due diligence than ever before.

In today's tight economic environment, companies increasingly are turning to outsourcing as a way to cut costs. But experts suggest firms should carefully weigh the benefits, challenges and risks of sending work out to third parties before signing on the dotted line.

"We're seeing firms that wouldn't talk about outsourcing before talking about it now," relates Chris Connors, a director with investment management consulting firm Citisoft. "Everyone is looking at different ways to cut costs."

As budgets tighten across the financial industry, a key benefit of outsourcing is the ability to bring in a service provider on an ad hoc basis without adding to fixed operational costs, notes Glen Froio, president of Northpoint Solutions, which provides services such as management dashboards and investor reporting, analyst research, pipeline management tools, and portfolio and risk management analytics.

Further, service providers also offer financial firms access to capabilities, expertise and technology that they may not have in-house. Outsourcing providers often invest in the latest technology, offsetting the expense by sharing the technology among several clients.

"When we started a mutual fund, it was very complex from an operational and regulatory standpoint," says Peter Mauthe, president of Dallas-based Rhoads Lucca Capital Management, which has multiple outsourcing partners, including Gemini Fund Services. "It made no sense to re-create internally what I could outsource externally. When I looked at the cost benefit, I could outsource to Gemini -- to an organization that had experience, talent and technology that was as good or better than anything I could hope to create internally [and] that it made no sense to re-create."

Outsourcing to Drive Growth

But outsourcing is more than an efficiency play, adds Mauthe. More important, he says, outsourcing is a driver for growth. "It's a key factor in us being able to grow our business. It allows us to focus on what we do," Mauthe stresses. "We could increase the size of our company five-fold in revenue and only hire five or six more people, because we outsource so much of the really technological skills, such as accounting and IT."

By outsourcing non-core functions, Rhoads Lucca can concentrate on its core business of investment management, rather than getting bogged down in operational services, adds Andrew Rogers, president of Gemini Fund Services, which works with advisers and funds to manage services such as fund accounting, transfer agency, compliance/regulatory requirements and reporting. "Advisers want to focus on managing and raising assets," Rogers says. "Most people don't create a fund to do back-office accounting but to raise assets. So where do you want to focus your energies? On the back office or on managing money? That's the biggest benefit of outsourcing."

Rhoads Lucca has outsourced its entire IT infrastructure. According to the firm's Mauthe, the investment manager's infrastructure outsourcing partner, External IT, can provide greater reliability and expertise than Rhoads Lucca could build internally. The outsourcer also offers a help desk that is open 24 hours a day, seven days a week.

"Every once in a while something comes up -- if you're in another part of the world, you don't have a help desk," Mauthe says. "So it's a key factor in us being able to grow our business. And by outsourcing, our IT is available anywhere in the world."

Outsourcing the company's IT infrastructure also means having a solid business continuity plan, Mauthe adds. "If I came back to the office and my office building didn't exist anymore, it wouldn't stop us from operating for the rest of the day, as we can redirect phones and all our IT infrastructure is outsourced and available on the Internet."

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio

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