Outsourcing has been a bit of a buzzword for the past six months. With predictions of increased workloads for advisers looking to remain independent, the discretionary fund management industry has been ready and waiting for funds to move in its direction. In addition to outsourcing investment management for appropriate clients, advisers would be looking for straightforward, off-the-shelf solutions from managers who know what they are talking about, it was said.
As with so much post-RDR analysis, it is too early to see what the full landscape will look like. With less than a year of the new world under their belts, some advisers are still finding their feet regarding a long-term service proposition.
But there can be little doubt that the business of advice is changing. While some advisers maintain a focus on direct investment management, many others are taking an all-round, holistic view – a view that is necessary to maintain independent status. Finding the balance between spending time with clients and providing a profitable proposition is inevitably pushing advisers to consider outsourcing. Solutions range from the adviser selecting a model portfolio to the client meeting with the DFM to ascertain their investment needs.
All hot air?
With all the debate around how the use of DFMs would increase, how has this actually panned out since the RDR came in? According to one survey, many advisers are set on keeping business in-house. A joint report by Cass Business School and BNY Mellon, ‘Challenge and opportunity: The impact of the RDR on the UK’s market for financial advice’, says 91 per cent of advisers have not increased their use of outsourcing arrangements as a result of the RDR as at March 2013.
However, of those advisers who do outsource services, the survey says discretionary fund management is most popular. As shown in Chart 1, a total of 23 per cent of advisers said they outsource this service. The next closest, both at 15 per cent, were management of back office systems and risk profiling.
In reality, lots of advisers have been using DFMs for many years. The industry is still in a state of transition between old and new business structures and set-ups will likely develop over time.
Anecdotally, the signs do point to increased use. Almost every DFM participant in our survey said they have seen an increase in volume post-RDR. Some pointed out, though, that this is a continuation of a trajectory they have been seeing for several years.
Buoyant market
