Talking Point 

Who bears the risk when outsourcing?

  • To understand why outsourcing has become popular.
  • To learn how this might affect risk and responsibility.
  • To ascertain how to demonstrate TCF in investment advice while keeping costs low.
CPD
30min

Greater transparency needed

Chartered financial planner Philip Milton argues that this type of mentality is precisely why advisers should be encouraged to outsource. He believes leaving the difficult task of asset allocation to the experts can create better transparency and put a stop to what he calls “semi-amateur investment people selling the best performing funds of yesterday”.

In his view, these benefits are worth every extra penny that outsourcing companies demand, particularly as portfolios enjoying daily oversight should compensate by delivering greater returns.

“The client thinks the adviser is managing his investments,” he says. “Many of them perhaps ‘play’ at it, shuffling a few things for some transactional charges once a year at the review or so instead of ‘proper’ investment management.

"Therefore, you could say that the advisers who do outsource are doing the right thing for their clients – having someone to oversee the investments all the time.”

Time is scarce

Outsourcing advocates argue that the depths of research and growing amount of regulatory reporting requirements needed to make sensible investment decisions on behalf of clients are no longer always possible to achieve effectively.

That, and research showing that clients reportedly value face-to-face time with their adviser above everything else, has prompted some in the profession to reassess how they run their business. 

Minesh Patel, chartered financial planner at Finchley–based EA Financial Solutions, lists a number of challenges that advisers now face when investing client money. 

His chief qualms include navigating various share classes, assessing regular management changes and performance records, together with the tiresome task of filtering through client portfolios to establish who qualifies for capital gains exemptions.

Each of these core responsibilities, Mr Patel adds, rob an adviser of precious time he could otherwise be dedicating to better organising client finances.

Clients love cheap and cheerful model portfolios

So why all the criticism? According to Mr Patel, people who actively build portfolios always think they can do better than the professionals, and are often only proved wrong during a market downturn.

Mr Patel prefers instead to use model portfolios built by big investment funds and claims his clients are often overjoyed to hear that one of the “best financial institutions in the world” is looking after their money.

“Clients have more confidence in you if you have the conversation that you are very good at certain aspects, the financial planning, but the investment aspects you want one of the best financial institutions in the world looking after,” he says.

Comments

CPD
30min
  1. Which regulatory regime does Mr Rainbow suggest gave rise to the trend of outsourcing?

  2. How does Mr Milton say portfolios with daily oversight can compensate investors?

  3. What does Mr Patel prefer to use?

  4. Who does Mr Beer say is on the hook for managing a portfolio within a set mandate?

  5. Why does Mr Gibson believe outsourcing can be too expensive for clients?

  6. A different Mr Gibson believes there is little value left in advisers dedicating endless hours of their day to picking funds. True or false?

Nearly There…

You have successfully answered all the questions correctly, well done! To bank your CPD please complete the form below.

What did you learn from undertaking this CPD exercise?

Why did you undertake this piece of learning?

Banked!

Congratulations, you have successfully completed and banked this piece of CPD

Already Banked!

You have already banked for this article.

To bank your CPD you must or

Register

One or more questions have been incorrectly answered,
 please review your answers and try again.

Please enter what you have learnt and why you completed this CPD.

More Investments CPDSee my completed CPDSee all CPD