Outsourcing to enhance the value of client relationships

Gill Cardy

If the blogs are anything to go by, opinion is evenly divided between those who consider outsourcing to be irresponsible abdication and those who consider it justifiable delegation.

On the one hand advisers who outsource are, inappropriately, failing to do something that is an essential part of their job. They are either demonstrating a core weakness in their skills and abilities or simply pretending that someone else is taking on responsibility for something that any decent adviser ought to be doing for him or herself.

Conversely those supporting the practice of outsourcing do not see it as a weakness to draw others into the network of professionals who together will enable the client to meet their personal and financial objectives. They see it as working alongside specialists whose additional skills or training, or whose focus on one specific task, mean your client can expect better outcomes when compared to one person spread too thinly.

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But this debate seems somewhat artificial. All financial advisers outsource. From the day when you first recommended a fund you outsourced investment to an investment manager working for a fund management company. It is not obvious to me why outsourcing investment selection to a portfolio manager working for a discretionary investment manager is any different in principle to outsourcing investment selection to someone such as Neil Woodford working for a company such as Invesco Perpetual.

Of course these days outsourcing may also refer to the use of external fund researchers or firms which construct model portfolios for implementation on platforms.

So is outsourcing fund research or portfolio construction to a third party an abdication of the adviser’s responsibilities or not? Is the use of a fund-of-funds, or manager of managers, a dereliction of your duties or not? Is delegating investments to a discretionary manager, instead of trying to keep it all in-house and cope with portfolio changes using only advisory permissions a professional failing, or a recognition that they add something valuable to the client relationship?

Some advisers approach outsourcing with a mindset of simply passing on all regulatory responsibilities. But others consider that investment managers, discretionary managers, researchers, paraplanners and others bring a range of skills that, far from diminishing the adviser’s role, emphasise their value at the heart of the client relationship.

Gill Cardy is managing director of the IFA Centre