A Practical Framework for Reducing Risk and Total Cost of Ownership

Investment managers routinely evaluate whether to build performance and investment operations capabilities internally or outsource them to specialized providers. Given ACA’s unique vantage point as an outsourced performance provider, third‑party verifier, and consultant to firms engaging other outsourcing partners, we see a full spectrum of operating models. When assessing how to approach a firm’s performance program, the right choice often depends on a firm’s scale, available expertise in house, risk tolerance, budget, and timeline.

Making the decision to outsource either all or a component of a performance program is only the beginning of a firm’s journey, with vendor selection playing a critical role in the program’s success and goals of the program. Insourcing offers direct control and institutional ownership, which many teams value when they have stable staffing and mature processes. Outsourcing often provides faster time to capability, reduced operational risk, enhanced expertise, and lower total cost of ownership (TCO) when fully burdened costs are considered.¹ ²

In our experience, the key factors are timing and resilience, not just headline cost. Over the years, we have observed firms make the shift to outsourcing after repeated turnover cycles or difficulty recruiting the right talent.

The True Cost of Insourcing

The fully loaded expense of an internal performance or investment operations role extends well beyond base salary. Organizations incur additional costs such as benefits, payroll taxes, recruiting and onboarding, training, technology access, management oversight, and quality control. Industry benchmarks estimate that fully loaded compensation is typically 1.25 to 1.5 times base salary.³ In practice, we often see the real multiple drift higher once ramp‑up time, management review cycles, and rework are included.

Turnover Trends in Financial Services

Turnover adds a significant, and often underestimated, cost. Gallup estimates that replacing an employee can cost 50% to 200% of annual salary, depending on role complexity and seniority.⁴ In performance operations, turnover risk is heightened by the loss of institutional knowledge embedded in methodologies, historical decisions, control frameworks, and reporting processes.

Public labor data confirms persistent turnover within financial services. According to the U.S. Bureau of Labor Statistics Job Openings and Labor Turnover Survey (JOLTS), the quits rate for the Financial Activities sector has averaged approximately 1.0%–2% per month in recent periods.⁵ While not specific to performance measurement roles, this data provides a reliable baseline for employee mobility within investment operations functions. On the ground, even a single departure in a lean team can ripple through month-end processing, composite maintenance, and audit preparation.

Performance operations require technical expertise on the subject of performance and the nuances of the firm. Asset managers with various systems, long-storied histories, changes to methodologies, understanding of historical judgments, calls, and decisions provide stability that can be overlooked or lost when there are personnel changes. We observe this pattern in both insourced and outsourced firms. The key to maintaining continuity is built‑in redundancy and quality documentation.

Outsourcing Economics and Cost Predictability

As costs continue to increase, managing budget volatility is a key priority for chief operating officers and chief financial officers. Outsourcing converts fixed personnel costs into predictable, contract-based operating expenses. A 2023 assessment by Information Services Group found that organizations using mature business process outsourcing (BPO) models achieved average cost savings of roughly 15% compared to comparable insourced operations.¹ This aligns with what we see in our Managed Services practice, where savings can range from 10% to 30%, depending on scope, complexity, and baseline processes.

Deloitte similarly notes that outsourcing and shared services models can deliver meaningful efficiencies when paired with standardized processes and strong governance.² By shifting to a contract model with clearly defined scope, service levels, and pricing, firms gain cost certainty across reporting cycles and reduce exposure to unplanned spend from hiring, attrition, overtime, and emergency tooling. In practice, this stabilizes the budget, smooths cash flows, and frees leadership to focus on outcomes rather than staffing variability.

The Expertise Gap Challenge

Performance and investment operations continue to require multidisciplinary skill sets spanning data management, performance calculation, composite construction, disclosure governance, reporting, real-time monitoring, AI readiness, and audit support. Technology enablement and modernizing workstreams can be time-consuming and costly expansions to ensure operations meet the demands of the business and mission of the team. Recruiting individuals with deep expertise across all domains can be challenging and requires a mosaic of personnel and technology to operate as needed for the firm.

Specialized outsourcing providers mitigate this challenge by deploying teams with complementary skill sets, enabling firms to access broader expertise without building and managing a large internal team.⁶ Our insourcing clients typically solve this by building small, complementary teams and by leaning on targeted consulting for specialized or niche needs. Our outsourcing clients rely on a provider’s bench depth to smooth demand spikes without permanent headcount. Both approaches can work if the coverage model is explicit.

Key Person Risk and Operational Resilience

Key person risk can be a material operational weakness in insourced models. When critical knowledge resides with a small number of individuals, turnover can disrupt reporting cycles, weaken controls, and heighten audit and compliance risk. Smaller firms may feel this more acutely, but larger firms have distinct workstreams and subject-matter expertise that can create unforeseen exposure. Often, the strongest insourced programs deliberately design against single points of failure with cross-training, procedure libraries, and independent quality control processes.

This is often a large ask for many firms, regardless of size and structure. Outsourcing models can address this vulnerability when teams prioritize cross-training, mutually agreed-upon standardized reporting, written policies and procedures that accurately reflect the practices in place, formal quality controls, and resource redundancy.⁷

Choosing Between Insourcing and Outsourcing

Insourcing is typically the right fit when:

• Teams are stable and experienced
• Processes are well-defined and repeatable
• The organization has enough scale to support fixed personnel and technology costs

Outsourcing is often preferable when:

• Internal capacity or expertise is constrained
• The firm is undergoing rapid growth or change
• New regulatory, compliance, or reporting demands emerge
• There is elevated key person risk
• Specialized skills are hard to hire or retain

A disciplined evaluation should include a multi-year view of TCO, speed to operational readiness, expertise requirements, and operational risk tolerance.

Conclusion

The decision to insource or outsource performance and investment operations is not binary and often evolves as a firm’s scale, complexity, and strategic priorities change. By focusing on total cost of ownership, expertise depth, and operational resilience, firms can select a model that supports both near-term performance reporting needs and long-term sustainable operations.

Learn how outsourced performance solutions can reduce risk and total cost of ownership.