Talking Point 

How to make outsourcing work for you and your clients

  • To understand what is meant by 'outsourcing'.
  • To learn different ways of delegating investment decisions.
  • To understand how the agent-as-client process works.
CPD
Approx.30min
How to make outsourcing work for you and your clients

The word ‘outsourcing’ is something of a catch-all term being used ever-more frequently to describe an adviser using different investment products and services for a variety of clients.

However, outsourcing might not be the most accurate term to describe the process by which an adviser might delegate the daily management of a portfolio or a discretionary managed fund to a specialist third-party fund manager. 

This was one of the overriding themes discussed at an Financial Adviser Masterclass, titled What makes outsourcing effective for advisers and clients, held at the Financial Times offices in London last week. Kicking off the masterclass, which was sponsored by Schroders, was Mike Coop, head of multi-asset portfolio management for Morningstar Investment Management.

He gave an overview on the regulatory view on outsourcing – although, of course, as was mentioned several times throughout the morning, the Financial Conduct Authority prefers to refer to the process of selecting a fund or service as ‘delegation’ to a third party.

According to Mr Coop, the reason for the interest in outsourcing from regulators and the financial services industry as a whole has been driven by a shift in demand from clients and advisers. 

Advisers need to weigh up the costs and benefits to them of managing investments in-house or delegating this to a third party, while clients often face big behavioural challenges, such as a fear of a market fall.

“This has a big effect on the money flowing in and out of funds”, Mr Coop said, “which has a knock-on effect on performance”. 

So for a client, having an expert manage the money for them is an attractive proposition, which accounts for the increased use of managed portfolio services, managed funds, multi-asset and multi-managed funds. But regulation has had a significant effect on why advisers might consider delegating – and how they need to go about doing so, if they are to do so correctly and compliantly.

Mr Coop pointed to three pieces of legislative guidance: 

1) The FCA’s principle nine, which states: “A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment”.

2) The Senior Managers’ Conduct rule SC3. This reads: “You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively.”

3) Under the Markets in Financial Instruments Directive II, which came into effect at the start of January this year, there is now an increased focus on client reporting and transparency. 

“We can see regulatory pressures are pushing people further down this route”, Mr Coop said, with advisers choosing more frequently to use a discretionary fund manager that can provide the asset allocation, portfolio construction and portfolio management and oversight of the funds, leaving the financial adviser free to focus on the client relationship and financial planning. 

CPD
Approx.30min
  1. According to Mr Coop, what has driven regulatory interest in outsourcing?

  2. The Senior Managers' Conduct Rule SC3 reads: "A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment". True or false?

  3. According to Mr Gurr, it is up to whom to interpret the rule correctly and look after the client?

  4. Mr Rainbow says there is no outsourcing of what for an adviser?

  5. What will accelerate a trend to greater efficiency of proposition, according to Mr Cook?

  6. What does Ms Booth say is incumbent upon the DFM?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To understand what is meant by 'outsourcing'.
  • To learn different ways of delegating investment decisions.
  • To understand how the agent-as-client process works.

I completed this CPD in

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

Comments