The Investit Intelligence research membership have commissioned ‘Managing Outsourcing Contracts and Oversight’ as a new study for 2013.

This research will focus on best practices for developing effective contracts and oversight programmes that ensure continuity of outsourced services in the event of interruption or termination. We will develop guidelines for strategic and day-to-day oversight, share exit plan strategies and recommend methodologies for risk assessment and contingency planning.

Regulators are raising concern with the state of outsourcing arrangements and the market’s ability to recover in the event a provider faces financial distress or severe operational disruption. Asset managers must demonstrate that they have viable contingency plans in place to manage unexpected loss of services and continue to meet their on-going obligations to clients.

In an environment of growing demand from regulators and clients, heightened competition and a need to best position their firms for future growth, asset managers are increasing their reliance on outsourced services. This shift in operating model is exposing managers to a broader array of risks that reside outside of their control. As a result, firms must develop strong oversight practices and viable contingency plans to ensure seamless delivery of services regardless of sourcing model.

These challenges present an opportunity for the industry to collectively develop best practices for managing outsourcing relationships and establishing sound contingency plans.

This detailed Investit research report will identify best practices and recommend guidelines for developing contractual agreements and contingency plans to manage expected or unexpected disruptions of outsourcing services, and will:

• Recommend oversight practices for monitoring and measuring outsourcing services, and forecasting potential risks.
• Identify key contractual terms that address contingency and exit plans, escalation and trigger points
• Develop assessment methodologies to gauge the criticality of a service, degree of risk and timeliness of replacement
• Share member and industry best practices, case studies and guidelines for developing effective outsourcing oversight programmes

For more information contact: Gina McCafferty

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Related titles

• The Changing Shape of Outsourcing
• Global Operating Models and Outsourcing
• New Developments in the Outsourcing Model
• Outsourcing Data Management
• Asset Servicing
• Outsourcing Mid-Term Report

The FSA’s ‘Dear CEO Letter’ has asked all investment management firms to demonstrate that they are sufficiently managing conflicts of interest and show appropriate care in spending client money on research and execution services. During a thematic review in 2012, the FSA found that:

“Firms regularly spend millions of pounds of their customers’ money buying research and execution services from brokers. Only a few firms we visited exercised the same standards of control over these payments that they exercised over payments made from the firms’ own resources.”

The FSA found that many firms had breached rules governing the use of commission and concluded “most of the firms could not demonstrate that customers avoid inappropriate costs”. The FCA (as it now is) plans a second round of thematic visits specifically to revisit this topic in Q3 2013.

As a response, a group of investment management firms (£30trn AUM collectively), have joined forces with Investit to discuss best practice and develop comparable information about the prices they pay for research. Investit has developed a Commission Analysis Survey to create greater transparency about market research, by giving fund managers information about comparative spending on research and execution.

The survey analysis will enable investment management firms to provide evidence that they are using client commission appropriately and will give CEOs confidence that the company is properly managing conflicts of interest in order to sign the attestation. They will also benefit from comparable price information for research and execution, satisfying their own cost management requirements.

For more information on the Commission Analysis Survey, please email or call Richard Phillipson on +44 (0)20 7933 9900.

Click Here for more information on the FSA’s Dear CEO Letter on Managing ‘Conflicts of Interest Between Asset Managers and Their Customers’

The old adage stating information is power has never been more evident than in today’s financial services industry. As firms continue to compete in increasingly complicated and volatile global financial markets under the scrutiny of more oppressive regulations and higher client expectations, the need for clean, comprehensive, timely information has never been more critical to a firm’s survival and success.

We are on a multi-year journey. A decade ago the financial services industry recognised the importance of data. After spending ten-plus years understanding how to cope with the growing volume and complexity of data, then developing and implementing technologies to manage and govern it, the industry is now focusing on how to combine specific data points to fuel the activities and decisions that enable our firms to succeed.

‘Knowledge’ is the next step in this information maturing process; this means understanding the information and taking action as a result. It is applying knowledge that will enable firms to differentiate themselves. Those who turn information into knowledge will understand their clients better, develop stronger solutions for their markets and run them more effectively because they know where and how to allocate their finite resources.

Critical to harnessing the power of information is developing a robust information strategy that aligns to the business strategy but remains flexible during times of change.

Research Insights

A continuation of Investit’s research stream on data and information management, this research focuses on information strategies and architectures that move beyond data management processes.

The report is an essential guide for organisations developing and implementing their information strategy. We review how firms are approaching information strategy and creating enhanced intelligence during the current era of technological change and more demanding user expectations.

Contact: Jackie Alvarez

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Regulatory reform of OTC derivatives is officially here. The impact of the new requirements is driving firms to evaluate costs and assess the value of derivatives to their portfolios.

Are they still worth it?

In an effort to reduce the counterparty risk associated with OTC derivative trades, regulators are enforcing central clearing and strict margin requirements that limit eligible collateral to the most liquid and lowest risk assets.

At the time of publication, clearing is limited to a small subset of the standardised OTC derivatives. The first wave of mandatory clearing has officially begun in the US and a phased implementation in Europe will begin in mid-2014. However, stringent collateralisation will soon be required for all non-cleared derivative trades and we expect the cleared model will extend to new assets over time.

Meeting the new collateral demands will cause derivatives to be more expensive whether cleared or non-cleared, which is driving firms to assess their value to the portfolio. For firms with large directional positions supporting Liability Driven Investment strategies, eliminating OTC derivatives from the portfolio is not an option. For others, alternative hedging techniques are on the horizon.

Beyond the business impact, the complexity of derivatives processing introduced by regulatory reform will require careful planning and significant change to operational processes and system infrastructures.

Research Insights

A continuation of our research on derivatives processing and collateral management, this research provides an analysis of current collateral management capabilities and reviews the impact of new OTC derivatives regulation for both the buy and sell-side organisation. We review the impact on investment strategies, governance, operational workflows and counterparty relationships – and identify innovative approaches and emerging practices that best suit firms’ business models.

This report provides a route map for investment management firms needing to build a strong governance programme for collateral management that engages multiple disciplines across the firm to drive the next moves and ensure a successful strategy.

Contact: Gina McCafferty

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Investit Intelligence research members who attended the 17^th Intelligence Conference on Tuesday 12 March, voted the Alternative Investment Fund Managers Directive (AIFMD) as their top regulatory concern followed by Dodd Frank. Although many regulatory activities have shifted in priority since last surveyed six months ago, these two regulations are still top, reflecting that there is work to be done in order to comply in time.

Which top 3 regulatory activities are causing your firm the most concern? (Top 5)

The Dear CEO Letters have immediately caused concern for industry leaders:

• Dear CEO Letter: Managing operational risk of outsourcing operations, 22%
• Dear CEO Letter: Managing conflicts of interest in commission, 11%

With these letters, the FSA have formally raised that these areas of consideration should be prioritised by investment managers when reviewing how they should structure themselves or conduct their business. These two regulatory activities are particularly interesting as they show a new phase in regulation; as we move to the twin peaks model, the Financial Conduct Authority is replacing the partnership approach adopted by the Financial Services Authority (FSA) with a more remote stance, directing the industry to lead solutions for specific thematic reviews.

Other shifts in priority of note were:

• Now that the European Commission has finalised its plans, Financial Transaction Tax went soaring from 0% in September 2012 to 14% this March.
• The biggest rise in concern was the European Market Infrastructure Regulation which rose from 11% to 38%, perhaps again fresh in people’s minds because of the recent clarification of rules.
• The biggest falls were Volker (down 20% to 6%) and Solvency II (down 21% to 17%), both of which are relatively in the long-term horizon compared to other regulatory activities which are becoming more urgent.

More information on the Regulatory Heatmap >>

More information on the Investit Intelligence Research Service >>

We will be participating in a number of streams at this respected buy-side industry event in London on the 19 March (website).

Front Office Technology Stream – Chaired by Catherine Doherty

• How can the front office better accommodate risk practices?
• Maintaining your front office agility handling increasingly products
• How your change and regulatory departments can work together to meet external requirements
• Delivering data quality, speed, and diversity
• Research analytics – providing your front office with more

Technology & Operations Stream

• Panel, Building a global support model – John Robertshaw
• Panel, Changing role of the IT department’s contribution to the business – Simon Stratford

Data Management Stream

• Roundtable: How are you meeting all regulatory requirements? – Sarah-Jane Dennis

Our latest survey on key initiatives among investment managers reveals that all firms are focusing on regulatory change programmes in 2013. 86% of the investment management firms who responded also indicate they are concentrating on client-focused initiatives. The primary drivers are the surge of regulatory reforms designed to protect concerned investors, increasing global competition in acquiring new clients, and supporting increased demands from existing clients.

At the same time, we have also found a general lag in business optimism; 32% of respondents said that they were easing off the power for the year ahead compared to only 3% in a similar survey in March 2012.

Previous Investit research has shown that strong client service can retain clients by up to 18 months longer during periods of weak performance. This realisation is driving firms to develop their ability to deliver exceptional service across all teams while increasing their value proposition to clients.

Respondents further indicated that in 2013 they would be undertaking the following initiatives:

• 86% of firms will focus on improving client management and on-boarding activities to increase client retention
• 75% of firms will focus on tackling client reporting and information delivery
• 67% will focus on enhancing their efforts to acquire new clients

In particular over the last few months, we have observed a general trend in specific projects to:

• Integrate CRM systems (usually cloud-based) into existing functionality enabling investment managers to enhance their clients’ experience
• Implement client reporting software to provide accurate and timely information to meet new regulatory requirements and reduce the burden on the client reporting function
• Deliver appropriate information to the client on the investment decisions made on their behalf and provide more personalised business intelligence, with more self-service capabilities

This finding correlates with the fact that Investit Intelligence research members have commissioned a research series on building a client-centric organisation. Over the course of the year we will provide members with an analysis of clients’ expectations and the current challenges in meeting those, and best practice toolkits for client data, client reporting and CRM (Client Relationship Management) solutions.

We are hosting the 17th conference for the Intelligence membership on Tuesday 12 March. At this key industry event we will discuss our latest research findings on ‘Collateral Management’, ‘Information Strategy’, and ‘Client Centricity’. This is a great opportunity for members to learn about key industry trends, interrogate the authors of the research, grow their network and discuss challenges among peers.

The agenda focuses on delivering the results of the member-selected research:

Collateral Management: Re-engineering for Regulatory Reform: We will provide an analysis of current capabilities and best practices for supporting collateral management under new OTC derivatives regulation. We will review the impact on organisational structures, counterparty relationships and operational workflows – and recommend best practice operating models for efficient processing.

Information Strategy: Playbook For The Future: We will focus on information strategies and architectures that move beyond data management processes, and review how firms are approaching information strategy and providing enhanced intelligence in an era of technological change and more demanding user expectations.

Client Centricity: The Current State: We will discuss clients’ expectations and the current challenges in meeting those, how firms are organising for optimal support of the client, and how firms are ensuring the client centric-strategy includes sales, finance, operations and technology. We will also analyse the correlation between client centricity and profitability; do higher levels of service lead to higher fees and happier clients?

Registration is essential
For all enquiries please contact Victoria Dalton-Banks: email or +44(0)20 7933 9930.

Venue
The Grocers’ Hall, Princes Street, London

Agenda

About Investit Intelligence
The Investit Intelligence program is a leading alliance of firms who collectively sponsor unbiased and practical industry research that informs their common objectives – to shape a successful future for their firm and be confident in their decisions designed to make that happen.

For many investment management and asset servicing firms, the Asian markets are well understood. Firms established in the region and newcomers alike are driven by the prospect of taking market share where wealth is expected to grow, in contrast to other markets where investable assets continue to shrink under difficult economic conditions.

However, there are major challenges, not least the diversity represented across this region of many fragmented financial centres ranging from major financial hubs to emerging markets.

Many firms have developed unique business models, sourcing strategies and operating models to accommodate the nuances of each market, where other firms have developed a strategic global operating model for growth in this region.

Research Insights

A continuation of our work into global expansion for investment management firms, this report examines how firms are growing into the Asia Pacific region. We identify various models used, the regional constraints which have impacted these models, and the success of these firms in “Going East”. This essential report for investment managers and third-party administrators looking to expand in the region:

• Provides insight into the Asia Pacific region, its various markets and opportunities
• Gives an understanding of the broad constraints to expansion in the region
• Describes the operating models used and the evolving best practice
• Re-draws the map of Asia to locate how centres of excellence and volume are developing

Contact: Gina McCafferty

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Members of our Investit Intelligence research service are now exclusively able to watch presentations online at the members-only research portal investitintelligence.com.

In September 2012, we launched the new version of the Intelligence online research portal where members can explore a catalogue of over 50 reports spanning 8 years of industry trends. In addition to the enhanced report functionality, we have now added presentations to the content available on the website.

The first addition to this section of the library is the latest webcast we hosted in November titled ‘The Operational Impact of Changes in Asian Markets’, where we focused on the complexities of investing, distributing and operating in the diverse Asian financial markets. In this session we discussed:

• The operating models that have developed over time
• The major pressured that are influencing how operational functions are delivered
• How these pressures are changing the products the investment managers sell
• How fund managers’ and custodians’ operations will change as a result of these pressures

If you would like more information on how you can join the Investit Intelligence research service, please contact Jackie Alvarez.