In spite of widespread claims that outsourcing of investments is set to explode, data gathered by FTAdviser across more than 10,000 advisers suggests only a creeping trend away from fund picking and that two-thirds still do not consider themselves to ‘outsource’ at all.
Research compiled by FTAdviser between January and April 2014 found that 16.3 per cent of 10,558 advisers said they did ‘outsource’ investments, up slightly from 14.8 per cent of more than 14,000 advisers between January and June 2013.
The number of advisers who use outsourcing for “some” clients has increased from 14.7 per cent for the six months to June 2013 to 17.1 per cent since the turn of 2014, while the number of advisers who state they do not outsource has dropped from 70.6 per cent to 66.6 per cent.
The data fly in the face of hubris from a number of providers operating across the space, who cite data pointing to an explosion in outsourcing.
Skandia today published data based on a survey of 200 advisers predicting that there would be 170 per cent growth to more than £140bn in the value of assets held with outsourced investment providers.
Two thirds of 200 financial advisers questioned by Skandia said they expect to use outsourced portfolio management in the next few years, with the average adviser expecting to use these services for 46 per cent of their clients.
Further research conducted by Skandia with 1,000 financial advisers suggests that the type of outsourced portfolio management services most frequently used by financial advisers are discretionary fund management, multi-manager funds, multi-asset funds and managed portfolio services run by a third party provider.
Discrepencies can arise from how outsourcing is defined. Anecdotal evidence suggests many advisers do not consider a rise in the use of solutions such as multi-manager or multi-asset funds within portfolios as proving an increase in ‘outsourcing’, as such asset allocation has been happening for many years.
Skandia’s data found that nearly 63 per cent of the financial advisers surveyed who outsource their investments stated that they did so because it allowed them to leverage on expertise outside of their own businesses.
This correlates with the 49 per cent of advisers who believe the investment expertise of a third party provider is the most important factor when considering an outsourced solution. A further 54 per cent stated that reducing risk to their business was another key benefit for outsourcing.
Earlier this week, Defaqto published research revealing that in 2013, 45 per cent of 452 advisers were outsourcing their investment propositions and of that figure, 51 per cent were doing so via discretionary management services.
The market response to the increased demand for outsourcing solutions has been the evolution of new product types and growth in the overall number of products available, Defaqto said.
Alistair Campbell, head of investment marketing at Skandia, said: “With the emphasis very much on improving customer outcomes and managing business risk, constructing bespoke portfolios for every client is no longer an option for many advisers.
“By using an outsourced investment solution, advisers recognise they can engage the skills of investment experts to help reduce the investment risk and administration burden to their business. This in turn allows them to spend more time on providing long term financial planning to their clients.”