Outsourcing: Pros and cons for your brokerage

One of the ways to achieve this is to outsource a number of services and functions normally undertaken in-house. This is one method where particularly the small- to medium-sized brokerage businesses can affect economies of scale and share in technological change. There are pros and cons to taking this approach, but before outlining these in further detail, it is important to understand the different types of outsourcing available.

Different types of outsourcing

The key terminology to be familiar with, in regards to outsourcing options for your brokerage, is:

• Business Process Outsourcing or BPO
• Offshore Outsourcing
• Nearshore Outsourcing

BPO is a business function where service providers use their employees in the place of yours. They can undertake functions from full secretarial or office support to data entry or voice-related services. To the customer making contact online or over the telephone, they represent your organisation. 

For other back-office functions, there is the option of using offshore outsourcing. This is where an internationally based service provider undertakes all or some of the daily work activities your office staff would usually perform. 

Nearshore outsourcing can provide all of the above, but the service provider is based nearer to home, rather than the other side of the world. This makes sense particularly as they are easier to travel to and will often share a similar time zone. 

Making a decision to outsource 

This will depend on the size of the brokerage and the length of time spent trading. For well-established firms, there are going to be a number of functions where outsourcing will save the business time and money. These can be broken down into business operation support and advice support. For the former, activities such as lead generation, marketing materials and e-news can be outsourced along with website development and management as well as IT equipment and support. 

Advice support in the form of investment management, product and fund research, specialist financial planning software, and technical support along with compliance services can all be outsourced by the brokerage. 

The key questions to ask before outsourcing is to look at each function in turn and determine whether it is core to the business or peripheral. Then look at whether the brokerage company has the expertise in-house or is confident it can manage the function at arm’s length. 

Finally, a brokerage has to identify whether the function to be outsourced is a source of competitive advantage. Once this has been identified, apply the following tests: 

• Will it be cheaper to outsource? 
• Is it going to reduce business risk? 
• Could practice and procedure used by the outsourcer be learnt and brought back in-house?
• Is the quality of the outputs better than the in-house solution?
• Will the people, time and resources freed up by outsourcing be used in a more productive manner?

The pros and cons of outsourcing 

Once the decision has been made to outsource some or all of the functions, what are the pros and cons for your brokerage company? 

Pros of outsourcing 

Significant cost savings has to be at the top of the list because if a company has freed up a number of business functions, then there are going to be savings, particularly for costs associated with employment of in-house staff (from salary costs to providing office space, setting up a marketing department or customer service call centre). If outsourced, these free up business resources to channel into other areas. 

There will also be a focus on the core business of sourcing lending services, business loans, property services and mortgage broker advice that is not distracted by other business functions. If the website goes down or there is a marketing campaign to plan and deliver on top of the day job, this is not a good use of key individuals’ time. Outsourcing allows the employer to focus on the job in hand and to provide a better quality of customer service. 

Thirdly, there are fewer issues around delivering the service due to staff sickness or covering for holidays because if IT support is outsourced and the technician calls in sick, it is not the brokerage business that has to find a replacement. 

Customer satisfaction and the quality of the service is improved because the business can be “operational” 24/7 whenever someone lands on the company website, regardless of different time zones. 

Downside of outsourcing 

Communication difficulties due to BPOs being based overseas are among the top disadvantages that are frequently cited by Australians. 

The dialect can be difficult to understand and can cause frustration, which is why near sourcing is becoming a preferred option. 

Alternatively, personnel based in the Philippines, for example, share similar cultural traits to the US and are a better “fit” when it comes to interacting with Australian clients. 

The quality of service, if not carefully managed with clear service level agreements, may not be of the high standard expected by the brokerage business. This has to be set out clearly from the beginning of the business relationship. Also, unless properly trained and briefed, the outsourced employee is not going to have the same level of understanding of the company as an in-house employee. Therefore, it is important to think clearly about who they are going to communicate to about your brokerage business and what is being communicated. 

At the end of the day, outsourcing has many advantages and indeed there can be great gains for your business, but it is important that you think through the specific needs of your brokerage to ensure that it is the right fit for you. 

Outsourcing is a major move, so always consider your options carefully and don’t forget to research possible outsourcers before making a final decision.