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Home > Investments > Discretionary Management

By Fraser Donaldson | Published Jul 16, 2012

Defaqto view: Outsourcing trend has yet to peak

At Defaqto’s conference on the RDR on July 5, we were reminded that picking a good multi-manager or discretionary manager is not the only issue advisers should consider if they wish to outsource part of their business – in this case, the management of their clients’ investments.

It runs much deeper than that – so deep, in fact, that advisers’ attitude to outsourcing may well be fundamental to their survival after the RDR. Nor have advisers outsourced everything they might, in spite of the fact that the implementation of the RDR is less than six months away. Our most recent survey (results below) suggests this trend may have some way to go.

Most advisers already outsource elements of their businesses, whether they think of it as outsourcing or not

The decision on what to outsource – if at all – goes right back to the fundamentals of what kind of business you want to run, what kind of service you want to offer, what expertise your firm has and what you can afford to spend. You need to have written in your business plan something along the lines of: “We are financial advisers, not investment managers and will not run money directly. We will endeavour to source the best investment solutions for our clients. We are not administrators so we will endeavour to source the best administrative systems and support services to fit our business strategy and current model.”

Our recent conference underlined just how much help is available for advisers who wish to apply this mantra for their own purposes. Compliance services, discretionary management and investment platforms can be tailored to an individual business, as can paraplanning and back office functions. In fact, an adviser firm can outsource almost however it wants, enabling it to focus solely on its core activities and specialisms.

Furthermore, technology is advancing to an extent that many outsourced functions can be integrated into one another, potentially into an almost end-to-end service from the back office through fund platforms to investment management. Advisers could then concentrate purely on financial planning and sourcing the best solutions for their clients.

There is still an attitude in this industry among some advisers that they should be doing everything themselves, because that is what they are paid for. Some certainly can, which is fine. However, it is always worth asking yourself the question, “What is best for my client?” They will expect, quite simply, their adviser to do what is best for them.

Take investment, for instance. Is it better for the client to always have the adviser managing their portfolio, or would the client achieve better outcomes if the whole market of investment specialists is open to them? It will not always be a clear cut decision and will often depend on what kind of relationship the client expects with his adviser.

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