The current banking and financial crisis has created an ideal opportunity for community banks, trust companies and similar organizations to re-evaluate the way they deliver trust and wealth management services. Gone are the days when the Board of Directors turned a blind eye on poorly performing trust departments. In a new era of increased oversight and accountability, bank regulators and senior management will be more vigilant than ever about making sure that trust departments are well-managed and profitable.
Despite a high-cost, low-margin profile, providing trust and related wealth management services is essential for most banks because of its relationship appeal. Given a choice, for example, most bank customers would prefer to have all of their banking needs handled by a single bank rather than having their checking account, mortgage and business loans with one bank and their trusts and other financial assets managed by another.
One way banks, trust companies and similar organizations can maximize the relationship value of providing trust and wealth management services while minimizing costs is by strategically outsourcing various components of providing those services. Depending on the size of the department and complexity of the services provided, it is not unusual to reduce the core costs of providing trust and related wealth management services by 50%, or more, by strategically outsourcing trust administration and operations.
Increased Control Over Strategic Business Results
A fear of “losing control” is one of the most frequently used arguments against outsourcing by bank trust department managers. However, the results of a survey by Accenture revealed that an astounding 86% of those surveyed concluded that outsourcing gave their organization “…more control over strategic business results in a variety of critical areas, such as shareholder value and revenue,” not less.
Cost Savings Can Strengthen Growth Efforts
Not surprisingly, the Accenture survey also found that “…73% of the companies redistribute the cost benefits of outsourcing to either bottom ACN line or growth efforts.”Not all cost savings should necessarily go to the bottom line. In some cases, it may be more prudent to reinvest some or all of those savings in new business development and frontline positions that have a greater impact on a trust department’s ability to attract and retain high net worth clients.
A More Strategic Focus on Building a Strong Business Model and Brand
The Accenture survey results also showed that 55% of the surveyed executives indicated that outsourcing “…allows effective implementation of ideas, strategies, and change at a faster and more controlled rate.” Strategically outsourcing trust department administration and operations allows trust department managers to take a more holistic approach to managing their business models, which results in greater overall success for the trust department and for the bank. It is also a great way for trust department managers to slide out from under the heavy burdens of daily micromanaging a business to become the visionary leader that is so important to the success of that business.
Summary and Conclusion
The benefits of a well-designed, strategic outsourcing partnership for bank trust departments and similar wealth management organizations are well documented and cannot be underestimated. In addition to achieving the benefits of reduced overhead, outsourcing trust administration and operations offers trust department managers an opportunity to examine business practices and methods that could simultaneously reveal significant revenue enhancement opportunities.
A truly strategic outsourcing partnership must also include a Service Level Agreement that assures trust department managers that they will receive high-level services based on shared economic interests rather than relying on traditional customer/vendor relationships.
Bank trust departments and similar fiduciary organizations should not be content with an outsourcing relationship that is based on cost savings alone. To be most effective, it must ACN be based on a strategic partnership that includes a much broader analysis of overall business goals and objectives, accompanied by a written Practice Management Program that establishes benchmarks and charts a course for success.
Upcoming articles will explore the benefits and structure of an effective Service Level Agreement and outline the advantages of instituting a Practice Management Program that focuses on goals, objectives and accountability.