Defaqto view: Out to refine outsourcing after the RDR

The RDR will place an increasing demand on advisers to provide and prove value for money to clients. Within this, time spent with high value customers will become even more important in order for advisers to fully service clients’ needs.

Our recent RDR-focused survey found that while 52 per cent of advisers say that their number of clients is likely to decrease post RDR, 49 per cent say those clients are likely to be of higher value.

With just months remaining before the new distribution era begins, advisory businesses are likely to be at an advanced stage of thinking through how they meet the demands of advice, and ultimately the needs of their clients, from January.

Outsourcing is certainly going to be a consideration for many, and while there has been a great deal of noise around outsourcing investment decision making, the benefits of outsourcing the back and mid office are an area that deserve equal focus. These areas involve many aspects, which are often time consuming and complex on the one hand, but which can ultimately take advisers away from the front line.

Outsourcing these functions can bring many benefits, including enabling firms to manage peaks and troughs in business efficiently and enabling them to handle areas that may ordinarily fall outside of their sphere of expertise. With RDR implementation approaching, the ultimate benefit is the added value that support in these areas will enable advisers to demonstrate to their clients in the form of robust and professional advice. Not only that, but reducing or removing the administrative burden will allow advisers to spend more time with clients.

However, the robustness of the procedures and frameworks used by an outsourcing partner is key, to ensure that advisers are able to deliver consistent and high quality outputs for their clients. This is particularly important with regard to treating customers fairly.

As an example, a central element with 2013 approaching is how businesses will move clients to a new RDR-compliant investment model. This can be a significant and complex undertaking for an advisory firm, but one which can be facilitated by a knowledgeable third party.

To decide what to do with a client’s existing investments can be a long drawn out process if starting from scratch. We know that being faced with a range of with-profit bonds, Isas and direct equities an adviser can undertake a considerable amount of work to reach a conclusion.

The key to consistency is to divide the existing assets into three categories:

- Prohibited. Examples would be investments that are unregulated or illiquid or areas in which the adviser is unable to give advice due to a lack of regulatory permissions. For this type of asset we suggest advisers make it absolutely clear to the client that no ongoing service will be provided in this area and no fees are in place. Any asset allocation undertaken would exclude the value of these investments although a valuation of the assets may be included in the regular review pack. These may or may not be liquidated in the future.