Managed Services Special Report

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Resentment waiting to Happen?

Given the rate of change across the capital markets and the need for both sell-side and buy-side firms to stay abreast with the latest developments, while simultaneously putting themselves in the best possible position from a technology and operational perspective to take advantage of new business opportunities, it is not surprising that firms of all description are looking to service providers for specialist technology and operational support.

Outsourcing parts of the business to specialist providers has long been a part of the capital markets landscape. After all, why would buy-side and sell-side firms go through the pain and often considerable expense of developing technology and operational expertise in-house when they can partner with a provider whose bread and butter it is to manage those same business processes, and which in many instances already manages identical functions on behalf of other clients as well as or better than they would ever be able to do in-house?

For large numbers of capital markets firms, it's a no brainer - it simply doesn't make operational or economic sense for them to manage largely commoditized business processes in-house, especially when they do not provide them with a competitive advantage.

But in recent years, the activities wrapped around outsourcing and managed services (not to mention the business rationale for entering such relationships) have changed. Now, outsourcing is synonymous with total "lift-outs" and handing over to a specialist functions that have become laborious and overly complex, while managed services is all about accessing and adding specialist functionality, data or applications to an existing technology stack that would simply not otherwise be technically or economically possible. The difference, therefore, is subtle, but significant.

A number of related themes are addressed in this special report, including: how firms should go about evaluating the functions that they can and cannot afford to offload to or take from a service provider; the regulatory and fiduciary implications (and possible restrictions) that need to be considered when contemplating a managed service relationship; the financial, operational and technical benefits that stand to be gained on the back of such services; and the key ingredients that ought to be present in all managed service arrangements. Such partnerships have the potential to yield significant benefits to both parties, but as with all relationships, they are only a few failed promises from souring.