Firms looking to outsource certain elements of their business will be doing so for a variety of reasons: cost, human resources, expertise or technology being some of the most common.
These are as applicable to the world of investment management as they are to any other form of outsourcing, and are often cited as part of the reason why advisers choose to outsource to a discretionary fund management (DFM) partner.
According to Rohit Narang, chief operating officer for Intelenet Global Services, “cost arbitrage” is a big factor – perhaps the most pressing one.
He explains: “Cost arbitrage is a big factor, as it could mean customers receive a better service for the same or even lower cost.
“For example, a financial firm may find they can engage the services of fully qualified chartered accountants for the same cost as hiring recent graduates, thanks to outsourcing.”
In addition, the human resource needed to be able to manage investments in-house can also be prohibitive in terms of cost and administration.
Mickey Morrissey, head of distribution for Smith & Williamson, says: “There is a considerable amount of research required to run this sort of proposition, which although a necessity, can become a burden for time-poor intermediaries.”
Emily Booth, senior investment manager for Parmenion Investment Management, comments: “It is smart for advisers to lean into the resources accessible by DFMs.
“To achieve the regulatory permission to manage on a discretionary basis, their staff will have to maintain extensive investment expertise, after passing the necessary qualifications.”
Mr Narang believes the rapid pace of technological innovation means staying on top of new developments has become “imperative” for business success.
With the rise of artificial intelligence, robotics and automation, firms which cannot compete technologically will find it difficult to compete in terms of investment management and ease of access for clients.
Therefore it would make sense to outsource investment management to companies whose pockets may be deeper, and therefore better able to cover the cost of up-to-the-second technological innovation.
According to Ms Booth: “The right DFM partner can also offer the adviser support for other areas, such as technology and risk control.
“This can benefit clients who are becoming more technologically enabled. Consumers of all ages want to be able to engage with their adviser through a variety of channels, including monitoring performance and engaging with their investments and adviser online.”
To be truly diversified, it is not just enough for some high-net worth clients to be given a choice of funds from the best in the UK; they also might want access to some of the world’s best fund managers.
Many smaller IFA firms would not have the means to research such fund managers, whereas a larger DFM or investment management boutique would not only have the resources to commit to such research, but also might have offices in other countries, enabling them to monitor market movements round-the-clock.