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Home > Investments > Discretionary Management

By Philip Bailey | Published Apr 30, 2012

Is insourcing a better solution?

The RDR has pushed advisers towards outsourcing the running of their clients’ investments. In spite of this, might there be another option for IFAs?

One of the core services that IFAs provide is managing their clients’ investments. As the RDR and other regulation has imposed more stringent requirements on IFAs with investment businesses, IFAs have increasingly outsourced investment management to multi-managers and, increasingly, to discretionary fund managers (DFMs).

Following the news that another IFA firm has been bought up by acquisitive DFMs, however, might there be an alternative to the outsourcing option?

With the RDR fast approaching, many advisers are reviewing their businesses and, in particular, the level of service they plan to offer once the new rules come into effect.

One of the key areas under review is the ability for IFAs to continue to manage investment portfolios, given the resources needed to sustain the levels of research, expertise and time required in a manner that complies with the RDR.

Outsourcing to a set of DFM-run model portfolios is often offered up as a possible solution for advisers. It offloads investment management and enables them to focus on financial advice and planning.

But what if investment management is where clients see the major value in the adviser’s business? And how do IFAs persuade clients to pay for discretionary management when the IFA has been providing this as part of their service for years?


An alternative way for IFAs to deal with this is not to outsource, but to contemplate the opposite: insourcing.

This may still allow them to manage the issues involved – in terms of research, expertise and time – and still retain control of their core investment management service and, in consequence, a valued element of their relationship with their clients.

Instead of passing the client across to the DFM, insourcing keeps the entire process with the IFA but draws on fund managers’ and analysts’ expertise to conduct the time consuming research required.

In effect, an insourcing arrangement will provide the intellectual property to a range of risk-graded model portfolios, based on strategic and tactical asset allocation and stock selections centred upon them.

As with a DFM service, the IFA’s time is freed up to focus on financial advice and planning and building relationships with clients. Unlike the DFM service, however, control is not passed out to another company and the IFA can add in an investment or change stock selections. This can enable the IFA to tailor the portfolios to their specific client bank or for the benefit of individual clients.

Conference calls and written monthly updates ensure the IFA is always in touch with the research and the thinking behind the suggested strategy.

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