The Changing Face of Portfolio Management

posted on Tuesday, July 31, 2012

The nuances of servicing a portfolio are myriad, and taking the time to learn all the ins and outs could take valuable time away from “business-getting” activities and deviate from a primary mission. Businesses initiate change in their servicing by first assessing whether their current servicing arrangements are the right solution.

The leasing niche market, with all its specialized tools and operations, has spawned a growing side industry in portfolio servicing and contract management. This focused business offering is finding takers who want to change the old way of “racking and stacking” their servicing operations. The beneficiaries have been banks, captives, manufacturers, and independent leasing companies, all of whom may either possess an in-house portfolio or wish to start one.

The nuances of servicing a portfolio are myriad, and taking the time to learn all the ins and outs could take valuable time away from “business-getting” activities and deviate from a primary mission. Businesses initiate change in their servicing by first assessing whether their current servicing arrangements are the right solution. This analysis can help a business decide to either maintain the status quo or consider an outsourcing option for all or part of the servicing for the portfolio. Outsourced services can include invoicing, tax compliance, asset management or even the entire front-end and back-end servicing process. The customer experience and financial performance impacted by servicing are reasons alone to place a priority on determining whether outsourcing is the right solution.

Lessors transitioning to holding their own paper (and currently without a servicing platform) should consider these points when evaluating outsourcing:

  • The ability to access the latest technology without a significant financial investment
  • The need for specialized skills and knowledge, whether in the short or long term
  • The need for scalability (small or large)
  • The ability to implement a servicing solution quickly and efficiently

Lessors with an existing servicing platform should consider these points when evaluating outsourcing:

  • The need to get a handle on rising costs
  • A desired improvement over current system capabilities or efficiencies
  • Any dissatisfaction with current service offering levels
  • The ability to access the latest technology without a significant financial investment
  • The need for scalability (small or large)

As lessors evaluate whether to outsource servicing or build an internal platform, they should consider the advantages of outsourcing. One industry executive said outsourcing immediately provided his company with an established servicing platform. With a servicing solution secured, he gained the confidence to pour more resources into growing his business. Outsourcing provides multiple advantages:

Cost Savings and Efficiency: Outsourcing allows lessors the benefit of incurring cost incrementally as the portfolio grows. Building a servicing platform is similar to building a manufacturing facility; simply put, the platform is built and paid for prior to using it. The build-in-anticipation-of-volume instantly creates costs and inefficiencies. The outsourcing advantage provides a pay-as-you-need model with efficiencies already clearly established and implemented.

Focus on Core Strengths: Assembling a back office infrastructure can be time consuming and require devotion of key management resources. Outsourcing operations alleviates the challenges and resource consumption and can build value. An already assembled, turn-key servicing platform allows continued focus on core business growing activity.

Risk Management: Assembling a back office is often centered on system capabilities and resource demand. Establishing standard operating procedures and policies to mitigate risks associated with servicing a portfolio can be an afterthought. Established outsourcing companies have already taken risk management requirements into consideration. In essence, when a lessor hires an outsourcing partner, it’s hiring with the expectation that the outsourcer is an expert in the field and has already established risk mitigation measures.

Staffing: Outsourcing takes over the often daunting task of hiring, training, and retaining the right employees for the function. Lessors immediately gain trained and experienced employees assigned to its portfolio. When the portfolio grows, the allocated resources grow incrementally. In the outsourcing environment, there actually is such a thing as a “half employee.”

Reduced Overhead: Similar to staffing, the outsourcing company assumes the responsibility and risk for managing overhead. The outsourcing partner supports office space computer systems and even the parking. When a lessor chooses outsourcing, adding or upgrading a server to support growth, keeping pace with new technology or adding office space are expenses incurred by the outsourcing partner.

Service Level Control: The outsourcing partner will adhere to the marching orders spelled out at the commencement of the relationship. Standard operating procedures, customer service practices, and other activities that are consistent with the lessor’s business model are spelled out in the beginning.

Enables Innovation: Meeting a customer’s unique request can be an unperceived benefit of outsourcing. An outsourcing partnership has the potential to enable or support the client’s need or ability to be innovative. Innovation in outsourcing goes beyond the policies and procedures of the offering; it emerges from a mature outsourcing relationship that forms the basis for applying new ideas to tackle emerging business challenges and opportunities. An outsourcing partner is a complementary extension of a lessor’s market presence, product offering and sales team.

Ability to Be Nimble: Today’s lessors need to be alert to fast changing market conditions and respond as quickly as possible. Outsourcing is a proven business strategy that transforms business processes and makes lessors more agile, enabling them to stay ahead of competition. Alternatively, when the crisis hit in 2008, outsourcing allowed for a quick transformation in the way a lessor needed to collect on their accounts: quick reaction to cyclical changes can be impactful to the bottom line.

Serving customers is ultimately what makes a lessor money. It can also drive the lessor’s reputation and brand in the market. Partner with a strong and reputable outsourcing company and enjoy the best of both worlds. The lessor leads the sales mission and the outsourcing partner manages the servicing. Outsourcing is transferring ownership of an operational or management process without giving up the control of the portfolio. The controlling factor is realized by specific standard operating procedures tailored to a desired customer experience level and continual access to the portfolio’s activity and performance The comfort factor is realized through the outsourcing partner by knowing the systems are reliable and capable of supporting unique business models. The servicing people are trained and retained to foster a specified level of service, and certain risks are mitigated through proven policies and procedures. These points coupled with managing expenses and growing the business at a steeper rate than anticipated, may point to outsourcing all or part of the servicing process as making sense for many lessors.

About the Author
Joe Andries, vice President and General Manager of GreatAmerica Portfolio Services Group LLC, (www.greatamerica.com) is responsible for the sales, marketing, operational oversight and strategic planning. The GreatAmerica Portfolio Services Group LLC is a subsidiary of GreatAmerica Financial Services, founded in Cedar Rapids, Iowa in 1992. They are an outsource provider that services portfolios/contracts at reduced costs and with fewer operational barriers so their customers can concentrate on core strengths. Their teams deliver solutions to banks, manufacturers, captives, independent dealers and finance companies. Their financial strength, industry knowledge, and reputation provide customers a high level of confidence regarding the care and servicing of their assets. Joe can be reached at 877-762-3808 or jandries@greatamerica.com.

Originally published in the NEFA Newsline July/August 2012.

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