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?

Comments (37)

10y
drexelalum11, what's your opinion? Comment below:

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.

10y
Ovechkin08, what's your opinion? Comment below:

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!

  • 1
5y
BackOfficePro, what's your opinion? Comment below:

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/
  • 2
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5y
ParksAndRec, what's your opinion? Comment below:

IB front office job offshored to Mumbai (Originally Posted: 11/17/2012)

Hello,

I've been offered a position in Mumbai by a top European bank at its front-office offshore centre. According to the recruiter, the position entails the same responsibility as an IB analyst in any other office, but you'll be working on deals located in other countries from Mumbai (so essentially, it's a cost cutting measure, and indeed the basic salary is lower).

Does anyone have any experience with such an 'offshored' front-office position? And what are the exit opportunities if I take this job, in terms of internal mobility, joining another IB, or biz school?

Been trying to google this but haven't read anything about it so far, so I'll really appreciate any advice. Thanks!!!

  • 2
5y
MountainKing, what's your opinion? Comment below:

From India. These jobs are not the real thing. Sorry to say.

5y
randomguy, what's your opinion? Comment below:

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.

5y
newfirstyear, what's your opinion? Comment below:

I'd be careful, this could just be a set up where the analysts in new york send grunt work they don't want to do to the india guys. It's still front office work but nothing meaningful. Not saying this is what it is, but that's what it sounds like.

5y
career, what's your opinion? Comment below:

Is this IBD or markets, because i have the same offer, its an 18 month placement out there before returning back?

Best Response
5y
Yuriy A, what's your opinion? Comment below:

Banks are Outsourcing Jobs....To Temps (Originally Posted: 07/19/2012)

One of the things that I noticed while working at a BB during 2011-2012 is that although there were still full time hires from campus recruiting, their numbers were gradually diminishing while the amount of temporary contract workers was increasing.

There has been media coverage regarding this trend. But it mostly mentioned BO/MO staff as well as some FO positions that were more of a support role. My experience is also from a BO/MO perspective so unfortunately I cannot comment on what was going on within the business side. It seems to me that during these times of cost cutting, especially when it comes to support staff, temporary employment makes very good sense. A lot of support staff work is dependent on volumes, so when trading/deal activity is high it makes perfect sense to hire temps so that when the volume starts to subside it is easier to let those employees know that their services are no longer needed, rather than firing a full time employee and taking away all their benefits and everything else they rely on to support themselves or their family.

I would imagine that front office positions are not as easily able to fill their ranks with temps when volume is high as for an FO employee the specialized skill sets needed, are not as easily available from temp agencies as a BO/MO role would require. Perhaps some of the folks from the FO side of things can comment here on what trends they have seen lately as far as temps are concerned, would be interesting to see how other departments are affected by this.

5y
West Coast rainmaker, what's your opinion? Comment below:

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.

5y
Anomanderis, what's your opinion? Comment below:

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.
5y
Yuriy A, what's your opinion? Comment below:
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?

5y
UFOinsider, what's your opinion? Comment below:
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
  • 2
5y
john doe, what's your opinion? Comment below:

Outsourcing (Originally Posted: 03/27/2007)

Rants aside how does everyone think outsourcing is going to change the future of research in the US/UK? Should I try to develop a taste for curries or is the effect overhyped?

5y
ratul, what's your opinion? Comment below:

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.'

5y
AndyLouis, what's your opinion? Comment below:

Does your firm use VA's / outsource? (Originally Posted: 02/20/2012)

Inspired by Patrick's interview in Forbes about how we use our virtual assistant Ivy, the best VA ever :)

I'm curious if banks large/small are starting to outsource & use virtual assistants for certain projects?

Any good success / failure stories?

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  • 1
5y
D M, what's your opinion? Comment below:

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
5y
freegg123, what's your opinion? Comment below:

How to deal with outsourcing (Originally Posted: 01/10/2014)

Hi all,

I'm working in the middle office of a British investment bank. Recently because of the shit performance the bank is having, it has decided to shed all the middle office stuff to South Africa. So it effectively means many jobs are made redundant including mine.

The firm showed its class by announcing tht it won't pay redundancy package, instead moving to people to junior positions and making them resign themselves.

My question is really what is the best move facing this situation, they offered me a role but that is one level lower than what I am now, I'm not interested in taking. So I think there are a few possibilities that might happen:

  1. Continue to refuse to take this role and forcing the firm to compromise by making a redundancy package

  2. Refuse the role, and the firm somehow finds a way to get you fired, not for refusing this role but you know they come up with all kinds of excuses.

  3. Resign right now, because I think it is sooner than later. In the coming month, the handover will start, the moment I finish handing over I become no value to the firm and at tht moment they wont care if I resign.

  4. Taking this role but eventually resign when have better options. I think this makes sense to most people, but the concern is if I spend more time doing work that is even backwards to what i do now, the amount of experience I got will make me even less competent for better opportunities and I can't get back the time I spend I this which I can use more wisely.

I would appreciate your thoughts.

5y
Skinnayyy, what's your opinion? Comment below:

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
  • 1
5y
LBT, what's your opinion? Comment below:

have no intern or junior available - outsourced data entry? (Originally Posted: 05/14/2014)

Has anyone ever taken something like entering crappy pdfs copies of financial statements into excel and just paid an outsourcer to do this? Meaning, this is technically falling to me to do, but I was entertaining the thought of personally going out of pocket to avoid this huge headache. PDF OCR is still going to leave me manually fixing what will probably be 50 pages. Experience or cost anyone?

5y
fin_geek, what's your opinion? Comment below:

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.

5y
WSO005, what's your opinion? Comment below:

Have you considered oDesk? Its a pretty terrific resource for outsourced work.

5y
SecretAgentMan, what's your opinion? Comment below:

Which ibanks outsource formatting? (Originally Posted: 12/11/2014)

Goldman outsources a lot of the investment banking formatting work to India. Anyone know what other banks do too? Feel like there should be a list out there somewhere.

5y
notthehospitalER, what's your opinion? Comment below:

In a similar vein, all the BBs I have had personal interaction with also have offshore research teams/functions to support the ib division etc

5y
oreos, what's your opinion? Comment below:

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
5y
SecretAgentMan, what's your opinion? Comment below:

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2mo
Johann Libert, what's your opinion? Comment below:

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