Mayank Bhatia
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Mayank Bhatia

Mayank Bhatia is an analyst at Everest Group.

Wealth Management: Market Trends You Need to Know | Blog

By | Banking, Financial Services & Insurance, Blog

When you outsource your wealth management function to a third-party service provider, you’re not responsible for handling day-to-day operations and client contact. But you still have a huge responsibility in making sure your provider is fully capable of serving your clients’ needs.

Here are five major market trends that are affecting the wealth management industry. Is your provider addressing them?

Trend 1: End of bank secrecy

As the global crackdown on bank secrecy continues, wealth management advisory firms have no choice but to quickly move from secrecy-led tax services to a more holistic and comprehensive approach to investor portfolio management.

Trend 2: Evolving investor requirements

There’s a very different advisor-investor dynamic with millennials than with baby boomers. The younger investors, especially those of the entrepreneurial class, are looking for a much wider range of services from their wealth advisory partners. Beyond tax management and planning, millennial investors want:

  • Access
    • Seamless access to wealth and investment advice across platforms and channels
    • Greater access to investment ideas relating to environmental responsibilities and social impact causes
  • A networking support platform where they can exchange notes about financial management with fellow investors, colleagues, friends, and social media, instead of solely depending on regular report and data feeds from their advisors
  • Passion-based investments that are not only used as a diversification strategy but can also yield high risk-adjusted returns. Popular examples we are seeing include wine, art, watches, coins, and cars
  • DIY, wherein investors are provided with tools and advice to perform their own research
  • Highly tailored investment strategies, e.g., for female entrepreneurs
  • Real-time updates and faster turnaround times for almost all processes within the wealth management lifecycle
  • Access to the specialized set of offerings, unconventional risk management strategies, and alternative investments funds wealth managers typically offer to just Ultra High Net Worth Individuals (UHNWI.)

Trend 3: Robo-advisory platforms

Despite the robot versus human debate, robo-advisory platforms continue to gain prominence. And investors are increasingly embracing a hybrid approach where they can get low-cost advice from robo-advisors and leverage human advisor expertise when more nuanced investment decisions come into play.

Trend 4: The digital disconnect

A technology-enabled front-office certainly helps financial services firms achieve some of their efficiency and client service goals. But RPA in the back-office can make their operations even more efficient and effective, and analytics in the back-office can help them make faster, better investment decisions, and anticipate customer behavior with greater precision.
Evolving fee models

Facing diminishing returns, investors are increasingly demanding more transparency around the fees they are charged. In turn, the fee model is gradually moving from commission-based to performance-based. For example, some providers are charging their fees linked to how well they perform against a particular benchmark index or rate.

Trend 5: The compliance conundrum

Despite rising costs, enterprises continue to remain skeptical and cautious about outsourcing large chunks of the compliance function. They’re increasingly outsourcing some transactional activities, such a regulatory reporting and basic documentation vetting, to their third-party providers. But they’re still holding more critical services, such as due diligence, end-to-end KYC, and AML processes, close to their vests. And this guarded position makes very smart business sense. Because they are ultimately responsible for correct compliance, and because so much is at stake, enterprises should only consider outsourcing these types of processes if they have full confidence in their providers’ expertise and ability to effectively fulfill their compliance obligations.

What trends are you seeing in the market? Is your wealth management provider able to keep pace with your evolving requirements? How are they charging you for the services? Please share your thoughts with me at [email protected].

Capital Markets BPO: Provider Selection Pricing Considerations | Sherpas in Blue Shirts

By | Banking, Financial Services & Insurance, Blog, Outsourcing

Capital markets BPO (Business Process Outsourcing) is one of the fastest growing industry-specific verticals within the BFSI segment, with a market size of over $2 billion in 2016. Investment banking is the largest line of business within the capital markets BPO. Asset management, custody and fund administration, and brokerage are the other key lines of business in this space.

Enterprises typically look to partner with third-party pureplay service providers such as Cognizant, EXL, Genpact, Infosys, and TCS to remain competitive in the marketplace, and simultaneously manage their regulatory, risk, and cost concerns. But the BPO majors are facing stiff competition from specialist capital markets BPO providers such as Avaloq, eClerx, and Xchanging, which are more focused and have deeper domain expertise.

Against this backdrop, what pricing considerations should enterprises take into account when selecting a specialist or a pureplay Business Process Outsourcing provider?

What to consider when selecting a Business Process Outsourcing provider

  • Specialists come at a premium: Specialist providers typically charge a premium price. The premium is nominal for low complexity processes such as static and dynamic data management, client onboarding, low value reconciliations, trade capture, and exception matching. Yet, it rises considerably for high complexity capital markets BPO processes such as OTC derivatives, syndicated loans, and alternative investments. Specialist capitalist providers’ expertise in niche and complex services gives them significant pricing power leverage over pureplay BPO providers.
    BPO-Business-Process-Outsourcing
  • Pureplay BPO providers on the move: However, pureplay BPO providers over the last couple of years have moved swiftly, and gained meaningful ground in terms of building competence in high value services. This increased, more head-on competition has reduced the pricing differential to some extent.
  • Pricing model induced rate differential: FTE-based pricing is most common in capital markets BPO contracts, closely followed by the transaction-based model. Typically, contracts with transaction pricing have a higher Annual Contract Value (ACV) per FTE, as the service provider agrees to share some of the buyer’s risk, and thus bakes the risk premium into the pricing. Additionally, the scope of work for capital markets BPO deals with transaction-based pricing is usually higher value and more complex, pushing up the average ACV per FTE further.

Pureplay BPO providers VS. specialists

Net-net, specialist providers, which at least as of today handle more high-value services, come at a higher price than their pureplay BPO peers. And, at least as of today, buyers appear ready and willing to pay this premium.

Enterprises in this space typically tend to value and favor specialists when it comes to finding a partner for their capital markets BPO operations. And they tend to be particularly selective, as most service providers –  both pureplay and specialist— do not play in all the segments, but instead focus on building deep capabilities around one or two of the four key business lines.

Are you working with a pureplay or specialist provider in the capital markets BPO space? To what extent did pricing play into your provider selection? Do you think specialists have an edge over pureplay BPO providers in terms of capabilities?

 

Pharma BPO: What Justifies Premium Resource Pricing? | Sherpas in Blue Shirts

By | Blog, Healthcare & Life Sciences

The global pharma industry, hit hard by the rise of generics and the patent cliff on branded drugs, has been in cost-cutting mode, especially since the beginning of this decade.

With the rising costs of R&D and new drug development, pharma corporations began looking at streamlining manufacturing operations through Contract Manufacturing Organizations (CMO) and de-risking their R&D efforts via Contract Research Organizations (CRO).

CROs, which were initially sought out by pharma companies to cope with ad hoc/transient requirements such as additional capacity, have now emerged to cater to a whole host of services in the pharma outsourcing construct. These include clinical trial management, clinical data management, medical/clinical writing, bio- statistical programming, pharmacovigilance, and regulatory report writing.

Offshoring has also gained considerable traction in the last few years. Indeed, many global pharma giants have increasingly looked to low-cost locations such as India, as evidenced by the establishment of various home-grown CROs and Indian arms of global CROs, and some Tier 1 Indian BPO providers’ scaling up their capabilities in this space.

Given their nature and complexity, pharma industry processes typically command a substantial FTE cost premium over judgment-based sub processes in functional areas. For example, the following chart compares Clinical Trial Management FTE costs within those in Financial Planning and Analysis and Procurement Outsourcing.

Typical price variation: FP&A, Sourcing and Clinical Trial Management services

Pharma BPOWhat’s behind these premium prices?

  • Skill profile: Even in the fairly early stages of outsourcing, pharma companies entrust some of their core work, such as clinical research, pre-clinical trial management, and certain activities in drug discovery, to their service providers. The necessary niche skill-sets typically require a background in clinical research, medicine, biotech, etc. Thus, the FTE rates are higher than those for even highly educated business analysts.
  • Nature of deals/projects: Pharma projects are relatively shorter in tenure than those in other BPO functions, especially deals involving medical writing and bio-statistical programming, where average tenure may range from four to eight months. Thus, the average utilization is significantly lower. This lower hour base to recover costs/margins leads to a higher hourly billing rate.
  • Service provider margins: While the highly mature and commoditized F&A, HR, and Procurement outsourcing markets have margins in the 10-20 percent range, pharma BPO is still relatively nascent and thus commands margins of25-50 percent.
  • Technology cost: In some deals, we’ve seen pharma BPO service providers bearing the cost of technology licensing, which further increases the FTE pricing.
    We expect that pharma BPO will likely continue commanding a premium pricing compared to other BPO functions for two key reasons.

First, pharma companies are gaining increased confidence from strengthening clinical and medical infrastructure and the stabilizing regulatory and business environment in India. This is resulting in outsourcing more core activities such as the entire spectrum of services pertaining to drug discovery and development. And second, Indian CROs and BPO providers are augmenting their capabilities to move beyond pharmacovigilance, bioequivalence, and bioavailability services, and challenging global CROs in areas such as end-to-end drug discovery and product development.

What’s your take on the premium pricing in the pharma BPO industry? Is it justified?