Adhering to the following vendor management best practices allows wealth and asset managers to take control and get the most out of the relationships on their terms.
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Nowadays, almost every firm is using a third-party vendor in some form.
According to WBR Insights, 83% of financial services companies outsource at least some part of their business to third-party contractors.
Software and service providers, consultants, freelancers, agencies… all of these entities play a role, taking on a variety of activities, including:
investment management, accounting, HR, IT, middle- and back-office operations, compliance, accounting, sales, marketing…
When properly utilized, third-parties - and the products and services offered - can boost productivity and efficiency, as well as drive down costs.
In other cases, things don’t work out:
All these examples underscore the importance of following best practices with vendors, so that wealth and asset managers reap the rewards of partnership.
Make sure the vendor is reputable, holding relevant qualifications, has a successful track record, and/or is regulated in some capacity.
The SEC is stepping up its requirements for RIAs to ensure proper oversight of third-parties and outsourcing, in an effort to reduce potential risk for clients and promote accountability.
Also, prioritize data security and cybersecurity from vendor, especially if they are dealing with sensitive information.
At Empaxis, we are ISO certified and SOC complaint, giving our wealth and asset management clients confidence that we adhere to data management and cybersecurity best practices when running their middle and back offices.
Know what you want from engagement with the vendor(s), both in terms of products delivered and services provided, as well as the desired benefit by engaging the third parties:
When dealing with service providers and project management, set expectations around key performance indicators (KPIs), quality standards, completion timelines, milestones and progress updates, communication frequency, including alerts if the work could go over budget or if there are delays/bottlenecks.
Put all your requirements in a contract!
No vendor management would be complete without negotiating the terms of the agreement.
Read the fine print of the contracts, ideally with the help of your compliance officer or legal counsel. Within realms of acceptability, identify wording or clauses to be amended, removed or added to best protect your organization and ultimately your clients.
If you’ve compared offers of similar vendors who’ve come in lower on their pricing, share it with the vendor and see if they can match or come close to it.
When planning to lock in a multi-year contract, try and get a lower rate than simply a one year.
Streamlining vendor management via consolidation has its benefits.
For one thing, it’s easier to manage fewer than greater. Also, there could be overlap between software, systems, and service providers used. Getting everything from one can reduce costs instead having it spread across multiple vendors.
Now there is another way to look at it…
Adding vendors should be considered, especially for larger investment firms, to mitigate risk, especially when managing large volumes of sensitive client and investment data.
The other consideration is if one vendor performs better than the others, there’s opportunity to consolidate the with the better performer.
Ultimately, one approach isn’t inherently better than the other. It all depends on the individual firm.
When partnering with an outsourced services provider, for example, it’s not on Day 1 they take over the work, without need of your feedback and oversight.
Depending on complexity, there is a knowledge transfer process, which could take several weeks or several months.
There’s an investment of time in training, reviews, and feedback that should deliver an increasing return on investment as time goes on and the partnership strengthens.
To reduce friction and delays in such knowledge transfer, make sure to select a vendor that already has the domain knowledge and familiarity and experience working with firms like yours.
If you have online subscriptions to investment data hubs or news portals (among other platforms), keep an eye out when the renewal dates are, especially if you’re no longer using them.
It’s easy to purchase and subscribe to a service, only to later forget about it… and fall into another month or year of a contract you never intended to be in.
Pay close to attention to your renewal dates, including the notice window for electing not to renew.
A well-defined exit strategy ensures smooth transitions when ending vendor relationships, whether due to contract expiration, underperformance, or strategic shifts.
Begin by clearly outlining termination clauses in contracts, including notice periods, early termination penalties, and conditions for breach of agreement (e.g., missed SLAs or security failures). If terminating early, document all vendor shortcomings meticulously and consult legal counsel to assess obligations or negotiate waivers.
Notify internal stakeholders (e.g., compliance, IT, operations) and the vendor promptly to align timelines and avoid disruptions. Prioritize the secure transfer of data, intellectual property, and process workflows back in-house or to a new provider, ensuring compliance with data privacy regulations.
Assign clear roles for managing the transition, such as a project lead to oversee knowledge transfers and IT teams to reconfigure systems. Finally, have a contingency plan to either absorb processes internally or onboard a replacement vendor seamlessly, maintaining operational continuity for clients and staff.
Third-party vendors offer wealth and asset managers specialized expertise and cost-effective solutions, enabling firms to focus on core competencies while scaling operations efficiently.
However, without disciplined vendor management practices, organizations risk overspending, more inefficiency , and unmet expectations from partners.
By rigorously applying the above vendor management best practices, investment firms can maximize the value of their partnerships.
These strategies not only mitigate risks like data breaches or contractual disputes but also foster long-term, mutually beneficial relationships.
At Empaxis, our ISO-certified, SOC-compliant framework - combined with proven industry expertise - makes us a preferred vendor and puts us in prime position to support wealth and asset managers for their middle- and back-office operations and technology requirements.
Schedule a free consultation with Empaxis to learn more.
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