Investment outsourcing is changing for the better

More and more advisers are turning to discretionary fund managers (DFMs) and multi-asset portfolios to help with their proposition.

RDR has caused advisers to think carefully about how they add value to client relationships, and this often comes through in the financial planning element of the relationship.

This drive towards outsourcing will only become more prominent with the introduction of Mifid II early last year and the processes it will introduce for adviser firms. 

Most advisers recognise the efficiencies that outsourcing investments brings to their businesses, allowing them to focus on growing their companies and helping clients achieve their lifestyle goals.

However, some have been considering making changes to create these efficiencies and are consequently still spending approximately a quarter of their time running their own investment proposition.

There are reasons for adviser firms keeping the investment processes in house – for example, if they are specialists in doing it themselves, if they want to keep their brand front and centre, or if they feel a DFM is not going to add value for the client.

Advisers are very much the architects of financial planning and this should carry over into investment advice.

However, the traditional outsourcing model is changing and a new wave of outsourcing is beginning to emerge, one that can provide assurances for any well-run adviser firm which still wants to feel in control of the investment proposition.

Outsourcing is not a one-size-fits-all service with a standard model portfolio provided to advisers. This is a trend that is being discovered by advisers.

When they talk to DFMs now, they can find a service that either fits off-the-shelf, should that be all they want, or something designed very much to the requirements of the adviser firm.

It is this consultative approach that is going to be the norm in the future and provide advisers with greater efficiencies.

DFMs can increasingly remove a lot more of the burden associated with investment advice with a range of services – including ongoing suitability reports, platform selection, Mifid II reporting, investment research and evolving an advisory model.

But, as with any sort of consulting relationship, the power stays with the adviser in terms of choosing how much, or little, outsourced services they wish to use.

Advisers are very much the architects of financial planning and this should carry over into investment advice.

Efficiencies will be created by them designing their own brand and financial planning proposition and have expert investment professionals' advice and, ultimately, deliver the results for them.

Like any architect, they should not be tempted into getting involved in the nitty gritty of the actual delivery of the proposition.

This won’t work for every business, as some like to retain control of everything or think the cheapest DFM will give them greater profit.

There are DFMs out there that will sacrifice providing a quality service just to sell a simple, cost-effective, model portfolio. This may result in missed opportunities for a firm.

Where this approach will work is with businesses that want to keep their brand at the forefront. We know that advisers care very much about their proposition and their clients’ experience and, increasingly, outsourcing is seen a professional and reliable method of delivering an excellent service.

In the past, adviser firms were sceptical of DFMs, and rightly so, as many looked to own the relationship with the client. But partnerships between advisers and DFMs today are very different.

Relationships that are based on partnerships can be far more effective.

DFMs can offer advisers many more services and support to add value to their client relationships, and it is these DFMs that advisers should be seeking out – either when reviewing their current partners, or looking to outsource for the first time.

Mifid II is going to drive further outsourcing of investment services. The impact so far has been significant, but with further rules due to come into force in April, this could be a tipping point for advisers.

If a business is focused on growth then they need to strip out all of the unnecessary admin, and ask themselves why they would not outsource.

Lawrence Cook is director of Thesis Asset Management