Over the years, Terrapin Technologies has worked with many financial institutions, in particular wealth management programs within banks and credit unions. Our customers have ranged in size, from small regional credit unions to large national banks. When talking with prospective customers about their data analytics and business reporting needs, one constant variable, no matter the program’s size, is the dilemma of whether to leverage the parent institution’s IT or to outsource. Naturally, we’re biased towards outsourcing because that’s good business for us. However, there are certainly times when it’s better to leverage internal resources rather than outsourcing. Yet, it doesn’t need to be an all-or-nothing approach; there are benefits to leveraging both your in-house IT and external solution providers concurrently. This article will walk you through the pros and cons of data analytics outsourcing and conclude with a look at a hybrid approach.
Pros of Outsourcing
IT Resource Constraints
Depending on the size of your institution, there is likely a multitude of business units, divisions, and departments that are all vying for your IT department’s resources. The organization’s executive team may deem that your data analytics needs are not a high enough priority. Or perhaps they can only give you a limited portion of IT resources that, unfortunately, just aren’t going to deliver what you need when you need it. After all, there is a limit to the number of projects that your IT department can take on.
It’s likely that your IT department, though very skilled at what they do, are generalists, which means they lack the expertise in developing and supporting data analytics for wealth management services. This lack of experience can cause delays in rolling out the reports and tools you need. Worse yet, sometimes wealth management programs have difficulty getting a project going because both departments have knowledge gaps. Such gaps could include your team not knowing “IT speak” and the IT team having a limited understanding of the world of investment products, services, and data providers.
Lack of Scalability and Adaptability
Now let’s say you were able to get the IT resources required to build the data analytics and business reporting you needed. You were able to push through the knowledge gaps and communication barriers. The reports work flawlessly, and you finally have actionable data to meet your revenue goals. Fast forward a year, and there’s a new initiative from the executive team that requires an overhaul of your advisor compensation plans for the upcoming year. Or maybe there are new SEC or FINRA rules that necessitate changes to your compliance management reporting. Or perhaps it’s not a drastic change, but rather a simple modification in the file layouts from your clearing provider that threatens the accuracy and timeliness of paying your advisors if not addressed immediately. So now you need to start all over again dealing with the resource limitations and knowledge gaps of your IT.
Cons of Outsourcing
Your in-house IT will be familiar with your business operations at a high level; likewise, your team will know how to work with them. There is a sense of familiarity in working with an internal team, and you understand the existing steps and procedures that are required to move projects through the various stages. In addition, they intimately understand all the other various components of your organization’s technology.
Ease of Access
In most cases, with an in-house IT team, you have immediate access to your IT team members. Not only are they in the same time zone, but they are likely in the same building. Nothing can quite replace on-site support and face-to-face meetings.
Bypass Vendor Procurement
The process of finding and assessing vendors can be quite an undertaking. You might find a vendor that checks all the right boxes except the price. Or maybe they are a good fit, and the price is right, but then you run into a roadblock during the risk assessment process because they use offshore development. When you consider these potential issues, your internal IT seems a lot more attractive.
It makes sense to use a combination of outsourced IT and internal personnel in many instances. Both approaches have pros and cons, and you can leverage the benefits of both worlds. Continue to use your in-house IT for regular, general support while using a vendor for specialized projects like data analytics. A company like Terrapin has the added bonus of knowing how to communicate technical needs with your IT team as well as having in-depth knowledge of the wealth management world. Such a combination will help deliver value to your team more quickly and help your program remain agile and scalable as you grow.