A business development professional at a large global service provider recently asked me: “Why do asset managers spend so little time on such an important decision as outsourcing the back or middle office?”

Excellent question! I responded that it should not be a short process and usually isn’t. I’d characterize it as a thorough process for which I’ve seen asset managers typically spend more than two years on strategizing, fact-finding, analyzing and making decisions. The Request for Proposal (RFP) is the most externally visible part of the process, which is likely what prompted the question.

The RFP is one discrete slice of an operational transformation strategy, but a high stakes phase at that. The service provider selected will take on many responsibilities – some mundane and some crucial to success – for typically five to ten years.

RFP Big Idea: choosing the right partner is critical and not easy

With this in mind, I’m going to share a few observations about various phases of the RFP process. The aim is to improve the likelihood of selecting the right partner.

Guiding Principles
The entire outsourcing process ─ from suitability assessment to strategic partner selection ─ should flow from a series of clear guiding principles based on the firm’s overall strategy. These tenets should be put in place at the outset of this exercise; they represent the foundation for the analysis and decision-making to come. Firms tend to articulate and establish guiding principles around requirements for the service provider’s technology platform and the abilities to deploy a global service model or modify the cost structure. These concepts come in handy when scoring submitted service provider responses and breaking ties. As such, they should even be shared with the service providers.

Who Should Get the RFP?
Whether to send an RFP to a particular service provider is always a dilemma. Some clearly might not be a good fit. For example, a service provider’s core strength may not align 100% with the asset manger’s book of business. The good news is that service providers are adept at determining whether an opportunity is the right fit for them. If service providers are on the margin, my recommendation is send them the RFP and allow them to judge whether they want to respond, rather than make that decision for them.

Profile Data
To ensure a complete and competitive response from the service providers, be sure to equip the RFP with a full and recent set of operational and investment metrics. Service providers use it for multiple purposes, such as determining how they will approach the opportunity (e.g., liftout or conversion). It also helps them shape the proposed service model (e.g., centers of excellence, offshore, etc.) Include your firm’s locations, number of personnel by function and technology used. Most importantly, the metrics enable them to prepare their indicative pricing. It’s a good idea to provide: the number of trading desks, markets and currencies traded, domestic and foreign assets held, types of securities held, funds, classes and accounts.

Embedding a broad range of data in the RFP minimizes the number of questions that may come back from service providers.

Evaluating the Written Responses
I’ve always counseled that the thrust of this phase is to eliminate potential partners rather than select the final partner. The goal here is to identify service providers with significant gaps against the guiding principles and other requirements. Everyone involved in the decision-making process should read the RFP responses thoroughly. When they do, they should keep in mind the guiding principles and give a higher rating on scorecards to those that satisfy the key requirements.

Due Diligence
At Accenture, we usually call the due diligence sessions with the finalists “Capability and Fit.” These discussions represent the deep dives on functional areas, e.g., fund accounting, valuation, expense processing, tax and financial reporting.

I have two recommendations for a successful due diligence process:

  1. Give the service providers enough time to prepare for the sessions. You want them to put their best foot forward, and working with them on the schedule is critical.
  2. Give the finalists sufficient documentation on your current operating model, technology framework and data flows for each in-scope process. This information expedites the due diligence sessions and ensures the contenders focus on your custom requirements. Case studies help them get to the crux of your custom or unique processing needs.

Technology Demos
Technology demonstrations are often make-or-break endeavors during the due diligence process. Service providers should always show their core information delivery platform. Beyond that, my general rule is that service providers should demonstrate other platforms only if they meet two requirements: the platform represents a competitive advantage; and the asset manager will use the platform.

Asset management firms could potentially benefit by focusing on high-level guiding principles and detailed requirements during the RFP process. By doing so, they increase the likelihood of selecting the right service partner as part of an operational transformation strategy.

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