For decades, managed services have been utilized across multiple sectors as a tool for operational support, becoming an integral part of the toolkit for global banks seeking ways to create capacity, reassess legacy systems, and streamline processes.

But while tier-one banks were quick to adopt, smaller market participants were more hesitant. Despite the growing pressures of rising transaction volumes and burgeoning regulatory requirements, many financial service organizations avoided managed services, seeing them as a solution requiring bigger budgets and greater internal resources than they could muster.

However, the perception has not kept pace with reality, as advances in technology and new service models have ushered in a new wave of flexible, lightweight service options for regional banks, investment managers, and even corporates.

Here are five persistent myths that prevent financial service providers from evaluating their options accurately.

Myth 1: Managed services disrupt BAU

A recent InvestOps survey sponsored by S&P Global Market Intelligence found that among heads of investment and similar organizations, 17% said that concerns about operational disruption were holding them back from adopting managed services.

While first-generation managed service models tended to be inflexible and require a lengthy implementation process, the introduction of flexible service models and lightweight, Software as a Service (SaaS) technologies have significantly minimized any disruption to business as usual (BAU). Support engagements now ramp up in a fraction of the time, returning quicker wins and greater long-term value than older service models.

Myth 2: Managed services are scaled for global operations

Early managed service engagements were structured for global operations and high head counts, but the scale of service delivery can now be customized to accommodate the needs (and budgets) of smaller organizations. In fact, an engagement can be scaled to deliver services equivalent to a fraction of a Full Time Equivalent (FTE) in a specific operational area.

Myth 3: Managed services are resource-intensive

The InvestOps survey found that 20% of respondents were held back from adopting an outsourcing model by concerns about the internal governance required, and 15% were held back by concerns about cost.

Service models based on FTE coverage and an incentivization structure that rewarded hours spent over deadlines met resulted in prohibitive costs and workflows that placed heavy management burdens on internal teams. However, the emergence of output-based pricing models changed the formula by shifting accountability to the service teams and aligning pricing to guaranteed outcomes rather than headcount.

Myth 4: Managed services require a heavy investment in tech

Managed services are no longer offered as an indivisible package of proprietary technology, processes, and services. Today, many service providers can break these offerings into modular components that can be offered as service-only engagements, tech-plus-service options, or business transformation engagements that leverage technology, services, and process enhancement.

Myth 5: Managed services pose a security risk

The InvestOps survey found that 18% of respondents were held back from adopting managed services because of concerns about data security.

However, the rapid maturation of secure, cloud-based technologies has enabled institutions to locate data centers worldwide and satisfy the most stringent local regulatory laws. As a result, the roadblocks and risks involved in sharing data with managed service providers—or even shifting the responsibility for data management onto an external partner—have been virtually eliminated.

Demystifying managed services

When change is the only constant, financial institutions must seize every advantage to stay relevant and competitive. With the global managed services market projected to double by 2028, buy side or sell side organizations can't afford to dismiss the option without exploring the potential.

Learn more. Read "Demystifying Managed Services for Financial Institutions", a white paper that examines the state of managed services for the financial industry and explores the new service models that are bringing new possibilities within reach for financial institutions of every size.

Download your copy here.

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.