Thoughts on Outsourcing in Finance

I’ve been hitting the books hard lately, in my effort to get a 4.0 GPA at a semi-target/non-target school (depending who you talk to) and keep coming to the same realization over and over again. The realization is that everything I am studying can very easily be outsourced. Even if I excel in school and achieve my goal of landing some sort of FO research job, the fact remains that someone in Asia, who is just as smart as me is willing to do the same job for a fraction of most Americans would consider a livable wage. My views on outsourcing in finance are as follows:

Investment Banking: I think it is safe to say that investment banking cannot be outsourced, because it is a field where people are willing to pay a significant premium for the best as opposed to the second best. The cost of paying Harvard educated banker in NY is justifiable, because the cost of a mistake can cost billions of dollars, and risk reduction is the name of the game.

Sales: I don’t even really think I need to make an argument for this one. When billions of dollars are being exchanged, no one wants to talk to a salesperson Sri Lanka.

Trading: I don’t really see it being outsourced, but I see traders being replaced by people with PHD’s in Physics.

HF: No one is going to pay 2/20 to a HF that does their due diligence in the Philippines. However, it may be possible for certain types of funds to hire large sales teams in NY or London and quietly outsource the research elsewhere.

PE: Pretty much the same deal as HF’s, only more so, because PE firms tend to have a more hands on approach in the companies they invest in.

ER: I personally hope it won’t be outsourced, because my game plan, pending I don’t get into ER out of undergrad is F500--->CFA--->ER--->sector specific HF, with no MBA involved, because I’d rather spend $100,000 on starting a business that involves outsourcing something to the Philippines. However, I believe writing reports and doing high school level math is something that is very easy to outsource, yet still has a strong chance to stay where it is, because analysts need to interview managers and visit the companies they are researching. Furthermore, if something blows up and clients find out one of the most prestigious banks in the world is outsourcing their research to a country they’ve never heard of, the effect on repeat business would be disastrous.

Operations: This entails many different job descriptions, but to sum it up, my belief is that if the clients have no idea who you are, or what you do, giving your job to someone, who is willing to work for $4 dollars per day and a box of soap, seems like the economically efficient decision.

In conclusion, I feel that the knowledge obtained in school is almost completely worthless. How smart you actually are is much less important than how smart you are perceived to be. If you are not dealing with clients, your job is completely replaceable. I am seriously restructuring how I manage my time, for now on my target is a 3.0 GPA, with 8 hours per day of cold calling and LinkedIn stalking, until I get an IB, PE, ER or HF internship.

What are your thoughts on outsourcing and do you see your current job as it is today, still existing 10 or 20 years from now?

 

Banks already outsource a ton of stuff, they all run offices in Hyderabad. The fact is, the Indian team generally sucks - hardcore. When I send them even the most menial task to do, it takes me longer to fix their mistakes than to do it myself. In IBD at least, we've started to drastically scale back our Hyderabad operations because it's simply a waste of time and money.

 

I think you're forgetting that wages are rising in the EM's as well. I was speaking to a fund manager at Aviva, a big UK insurer, who was telling me that they use to outsource all of their financial statement modelling to a team in India. However, the wage demands of the analysts kept increasing to the point where it was just a cheap to hire a graduate in London to do the same work. I'm keeping my fingers crossed!

 

Hey,

I am from Princeton, NJ worked for Backofficepro as a marketing manager, so as per my little bit marketing knowledge on outsourcing. I would love to say that there is lots of advantages on outsourcing in finance. Like:

Outsourcing Enables Strategic Redeployment of Staff

In lots of companies, office staffs have to work with manpower constraints and it becomes a trouble on them. A small number of persons cannot knob the infinite number of data that accounting entails. A expert finance and accounting outsourcing company will have a large team for their accounting processes. Such an association will distribute its skilled professionals to job on this statistics, which proves to be a win-win circumstances for everybody. In many cases, the accountants in the customer company accommodate to a management role that simply entails selling with the service supplier and making sure that the responsibilities are finished perfectly.

https://www.backofficepro.com/
 

Guess this is the DB Middle Office role (not back office since you are still involved in client interactions). The experience is fairly similar to a European front office role (with lower money of course) and most guys end up getting absorbed in the London office eventually. Its a good deal if you have no front office positions on your plate, if you have a front office role then this is not comparable.

 

I knew F500s were doing this, but that banks are too is news. I would have thought some sort of compliance issue would crop up, but I guess not.

I am actually thinking of buying stock in a few of these companies (eg Insperity (NSP)) . It makes sense; the one cost synergy that you can actually count on is reduced administrative costs.

 

Yeah, where at work, any resignation is currently being filled by temps and offshore workers. I think this sort of behavior tends to happen when things slow down and companies don't want to make long term commitments. If the volume stays high for long, and the outlook looks brighter, then most of the temps may get re-absorbed. Companies are simply moving risk from the companies to the individuals.

But Rhaegar fought valiantly, Rhaegar fought nobly, Rhaegar fought bravely. And Rhaegar died.
 
Anomanderis:
Yeah, where at work, any resignation is currently being filled by temps and offshore workers. I think this sort of behavior tends to happen when things slow down and companies don't want to make long term commitments. If the volume stays high for long, and the outlook looks brighter, then most of the temps may get re-absorbed. Companies are simply moving risk from the companies to the individuals.

Thanks for this, would you mind elaborating on what type of a business unit or division you have seen this in?

 
Anomanderis:
Companies are simply moving risk from the companies to the individuals.
They're also moving the responsibility and cost (see: benefits and ability to committ to rent contracts etc) onto them, so at some point people just quit. When people realize that they're unlikely / never going to be treated well, they literally stop caring all together and look for other options...and often drop a bomb on the way out the door. My firm has been hiring temps from BBs because they do the training for us and the kids are happy to just have a job...even if it isn't at the goldman stanley. They're also working better than new hires out of school because they understand the value of what we offer: stability. Well, stable as far as finance goes.

IT / MO / BO / research / even some FO jobs are seeing this. The client facing roles and direct support areas HAVE to be on site, but everything else is up for grabs.

Get busy living
 

overhyped. It'll reduce the size of teams, but main guys will still be there - the mix is way key. I think traders are more in trouble. And the advent of the hedge fun means analysts are more necessary than ever. Look at the head of Merrill the other saying that selling research is a business that is 'thriving.'

 

I doubt it, since banking is a very face-to-face type business.

PS- "dm me" ;)

"You stop being an asshole when it sucks to be you." -IlliniProgrammer "Your grammar made me wish I'd been aborted." -happypantsmcgee
 

Are valuable enough to another company that you could get a different job fairly quickly before running out of funds in your savings account?

If it's going to take you longer than a few months I would say just look for new opportunities while still working at your current position.

Also, make sure that if you're going to leave the company and not have a new job lined up it's because you were layed off, not because you resigned. That way you can at least get unemployment benefits.

make it hard to spot the general by working like a soldier
 

For big data entry jobs, we usually have two temps enter the same data in some format that you can cross check easily. Don't know cost of the temps though. You also have to factor in that the temps will likely be less efficient than you and the time it takes to reconcile double-entry if you get crappy temps. If you don't do double entry, you will likely end up spending more time checking the accuracy of the entered data, which would likely defeat the purpose of outsourcing.

 

I know DB research outsource all their plugging in financials.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 

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