Advisers are increasingly outsourcing to specialist paraplanners as they seek to reduce fixed costs and improve efficiency in the wake of the Retail Distribution Review rules coming into force and ahead of a looming hike to capital adequacy requirements in 2014 and 2015.
In an interview with FTAdviser, to be published later today (2 August), Alan Gow, founder of Berkshire-based specialist paraplanning firm Argonaut Paraplanning, says he is enjoying a major uptick in new business.
In addition to the effects of the RDR, he says this is the result of new rules coming into force in January 2014 that will increase the amount of capital advisers must hold - which will eventually rise to a minimum of £20,000 by 2015 - is driving advisers to cut their fixed costs.
He said that in combination, these trends are making advisers seeking to increase the use of paraplanners to improve efficiencies look at whether they want to “pay for a desk space” for a paraplanner that will be “twiddling their thumbs” any time the adviser is not driving business.
He said: “The RDR has forced advisers to look at what they are doing in a big way and do a wholesale review of what they do. Also an increase in capital adequacy requirements has helped.
“What we are seeing are people stating, ‘I need to lower my fixed costs and I don’t need to pay for a desk space for a paraplanner and I don’t need to be having them twiddling their thumbs when I am on holiday’.
“So they are coming to us instead and we have also got increased use of [discretionary fund manager] services, DFM portfolios, multi manager funds and a lot of investment divisions being outsourced as well.”
However, despite the pick-up in demand, Mr Gow says the main challenge for the firm is finding “appropriately qualified and experienced staff”, echoing a concern over a paucity of quality fresh blood in the advisory space more generally.
He said: “And I say qualified and experienced as we do speak to a lot of people who have got what we are looking for on paper but when it comes to applying that knowledge in a suitability report, it’s not there.”
Mr Gow has not seen an influx of ex-advisers that left the industry due to the RDR.
He said: “I have spoken maybe to a couple of advisers who are considering paraplanning but it’s such a different type of work. I think advisers are the kind of people who like to go out and see people.
“In fact as an outsourced [provider], we have... very rare instances of having direct client contact and it’s the sort of person who is happy to sit at a desk and is good with language and explanations in things in the written format.”
The full interview with Mr Gow will be published later today.