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As an emerging manager, there are only two things you can’t outsource: your investment strategy and investment selection process, and your fiduciary responsibility.
Whilst this doesn’t mean you can simply hand over complete responsibility to service providers, it does mean that, should you want to, you can keep your company very lean and focus on the nitty gritty of managing money – which is presumably what you set out to do in the first place.
Just be careful who you hand these responsibilities over to – otherwise you may come to regret it further down the line.
Culture is something you absolutely should consider as a major priority. This includes how people think about their firm, colleagues, clients etc. and how they conduct their business. Culture is intangible but it does make a difference and should be part of your due diligence through your conversations with prospective providers.
Questions you should consider asking include:
When you pick up the phone to one of your service providers you want them to be there when it matters. We’re all drawn in by the fancy website but ultimately these things are about personal relationships.
Can you make contact with them personally?
Can you meet existing clients?
If the answer is “no’ for either of those, then you probably ought to look elsewhere.
Don’t forget, you are entrusting service providers with your greatest asset: your reputation. Ask yourself: are you confident having one of your investors interact with them as if they were you? Because, ultimately, if something goes wrong it will be you that is held accountable – not the service provider.
Make sure that the person in your organisation who is going to be using that particular service the most is involved in choosing that provider. They should have a better feel for how well suited the provider will be.
And don’t forget to lean on other service providers who may be able to provide insights. For example, if you’re looking for a data provider, why not ask your prime broker who they use and whether they would recommend them? They will probably be more than happy to point you in the right direction and share useful anecdotes etc.
Tip: Look for service providers who also work with big boys. That can be a way to get a foot in the door with institutions if your performance is there.
Tip: Look for multi-year contracts. Scale also benefits the service provider – they grow with you.
Here’s our checklist to make sure no stone is left unturned when it comes to your relationships with service providers and the value they can bring to your business:
Always ask around for recommendations before you get involved with a service provider and consider following a formal RFP process. See our article on Operational Due Diligence (ODD) for further detail.
In the age of Zoom and remote working, the power of face-to-face meetings is often overlooked. There is no substitute for looking someone in the eye when you shake their hand. This is just as true for relationships with third-party service providers as it is for colleagues and clients.
Service providers can be a wealth of information, advice and insights. Don’t shy away from consulting them, even if it’s not immediately apparent that it’s their area of expertise. Service providers such as fund administrators and compliance consultants often have a ‘bird’s eye’ view of what’s going on because they deal with a variety of clients.
Sharing your plans for the future and explaining how the service provider can grow their business with you will help establish a sense of shared interest. Setting clear milestones for growth can be a good way of communicating to a service provider that you mean business.
Get to know the people that are assigned to your account from your service provider and take an interest in them beyond the fact that they help you run your business. Socialise with them and get to know them on a personal level. This can go a long way in fostering a sense of camaraderie and help build a partnership rather than a commercial relationship.
Disclaimer: This blog is intended for informational purposes only. This blog is not intended to invite, induce or encourage any persons to engage in any investment activities and is not a solicitation or an offer to buy or sell any stock, investment product or other financial instruments. If in doubt, please seek financial advice from an independent financial adviser. Sarnia Asset Management is licensed by the Guernsey Financial Services Commission (GFSC). Past performance is not an indication of future returns. Investments carry risk, including the risk that you will not recover the sum that you invested.
By James Faulkner
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