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CutterBenchmarking Study Finds Investment Managers Have Room to Improve Their Vendor Management Practices

Cutter Associates, the leading provider of operations and technology expertise to the investment management industry, recently completed a benchmarking study on vendor management in the asset management community. Of participating investment management firms, 74% cited keeping pace with the growing number of providers among their top three challenges, and one third cited the same concern as their number one challenge.

Angela Centeno, Senior Research Analyst and co-author of the report, noted, “With the proliferation of vendors and service providers that investment managers are using, firms are finding increased requirements for monitoring and tracking risk and service levels. We are seeing a meaningful increase in the use of outsource providers for a variety of functions.” Of the firms surveyed, 63% outsource key business functions to third party providers, and the back office is the area outsourced most often. “Firms that outsource business or IT functionality actually appear to be better at managing their vendors than those firms that outsource fewer functions,” said Centeno. The study found that 82% of firms outsourcing key business functions use formalized questionnaires and risk reports to evaluate vendors, but only 60% of firms use formalized questionnaires and risk reports who do not outsource these functions. “The firms outsourcing key business functions, such as their middle or back office, tend to have better vendor management practices in place, including formalized processes and programs for monitoring service levels.” The more mature vendor management programs also tend to monitor a wide array of vendor metrics, including contracts, costs, service level agreements, risk, and renewals.

Many participants also cited low adoption of supporting technology as an issue for vendor management, with 70% of respondents still tracking and reporting on vendor service metrics using spreadsheets and ad hoc approaches. Despite the IT department often being the de-facto vendor manager when a firm adopts new tools, the use of technology for the actual vendor management process to track and report metrics is still in its infancy. “Investment managers have opportunities to update and better manage their processes,” said Centeno, “but growing demands for due diligence from regulators, clients, and senior management might mean that one tool may no longer cover everything.”    

The study was conducted in October 2016, with 27 global firms participating, including asset managers, pension funds, and insurance companies with a broad range of assets under management.

Cutter Associates will be delving more deeply into the topic this spring, with new research on Managing Vendors and Service Providers.

Cutter Associates, LLC serves the operational and technology needs of the global asset management industry, providing clients the tools and services they need to be successful. By leveraging multi-faceted expertise and an unrivaled knowledgebase, Cutter Associates provides clients truly independent research, exclusive member-only events, custom operations benchmarking, and a global consultancy for strategic advice on and delivery of operational and technology excellence. Cutter Associates works with the world’s leading asset managers, providers, and servicers. Headquartered in Hingham, MA, Cutter Associates has subsidiaries in Canada and the UK, and is on the Web. Cutter Associates is a wholly-owned subsidiary of Nomura Research Institute (NRI), headquartered in Tokyo, Japan.