STP Institute


What to Look for in an Outsourced Fund Administration Partner

February 2024

Outsourcing fund administration continues to be a growing trend among investment and wealth management firms—and for several good reasons.

First, many investors prefer that firms leverage a third party to provide impartiality and accuracy over books and records—sometimes, not working with an outsourced independent fund administrator can be a major roadblock to acquiring investors.

Second, fund administration is tedious, time-consuming work, often requiring a large in-house team. And most wealth management professionals didn’t get into business to perform fund admin-related tasks; their time would be better spent working with clients and managing investment portfolios.

Finally, because it can be difficult for teams performing fund administration tasks in house to keep up with best practices, outsourcing the work can often be far more efficient and cost effective.

If you’re considering outsourcing fund administration for any or all of the reasons above, there are a few things to keep in mind.

The Dangers of Outsourcing to an Unreputable Fund Administration Provider 

Outsourcing fund administration to a third party makes sense—but it must be done with caution. Fund administration mistakes can have devastating consequences, both financial and reputational. 

The three most common mistakes we hear from firms looking to change outsourced fund administration providers are:

  • Sending private investment information to the wrong party
  • Failing to meet regulatory requirements resulting in fines or sanctions
  • Wire or reconciliation issues causing inaccurate returns, resulting in poor decision-making and/or fund losses

Choosing a Fund Administration Partner Wisely

Firms can’t afford the risks associated with careless outsourcing providers. Therefore, it’s critical to understand exactly what to look for if you’re considering outsourcing fund administration.

As you’re evaluating potential fund admin partners, ask these 7 questions:

  1. Is the business financially sound?

 You don’t want to tie your funds up in a provider that goes under three months into your contract. It’s easier to discern the financial stability of public companies than private, but if you’re vetting private providers, you can still do your due diligence.

One caveat here: A single large client may not be a good sign, because if that client departs, it could shut off the provider’s main source of cashflow. 

  1. Do they have references from clients like my firm?

You need to know more than the size of the clients they serve. It’s also critical to understand if those clients share some of the same operational needs and challenges you face—and if the provider was able to successfully meet those challenges.

  1. What does their team look like?

When you think of outsourcing, you might not think about access to subject matter experts or professionals with credentials your team doesn’t have—but you should. One of the benefits of outsourcing fund administration is being able to tap into expertise that wouldn’t otherwise be available to you. Find out about the team structure to get a better understanding of whether the provider will be able to help guide your firm to greater efficiencies and growth. Ask yourself: can this provider be an extension of my firm?

  1. Can they integrate with my workflows?

An experienced third-party fund administrator will be able to tailor their workflows, processes and capabilities to your needs, not the other way around. Outsourcing fund administration should create significantly less work for your team, not more.

  1. Do they have an appropriate control environment?

Fund administrators should provide at least a SOC I (System and Organization Controls) report to help you understand the checks and balances they’ve put in place to protect you and themselves.

  1. Can they grow with me?

If you’re considering expanding the funds that you offer—for example, moving into alternatives like cryptocurrency or real estate—you’ll want to be confident your fund administrator will be able to handle those offerings. Look for a partner that continues investing in the future of fund administration, either by enhancing their own capabilities or developing strategic partnerships.

  1. How will I know what they’re doing for my firm?

One of the dangers of outsourcing fund administration that can lead to the aforementioned costly mistakes is a lack of transparency. Historically, fund administration has been run on antiquated processes that left firms unable to tell what their provider was working on for their account on a day-to-day basis. 

Outsourced partners that prioritize transparency want you to see how they’re serving you, because they’re fully confident in their ability to do so effectively and because they value your relationship. 

Look for easy-to-use workflow dashboards that offer insight into positions and processes, reasonable SLAs, and consistent communication channels, such as quarterly progress reports.

Outsourcing fund administration can save your firm time and money, but only if you choose the right partner.

To learn more about STP’s outsourced fund administration services, click here.


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