Paraplanners have been widely lauded as advisers’ ‘critical friends’ who have come to the fore in the more stringent regulatory environment following the retail distribution review.
The dilemma for intermediaries is whether they would get the best possible return on investment by hiring a dedicated in-house paraplanner or by outsourcing the process altogether.
A recent study by IFA support firm Panacea Adviser revealed only 1 per cent of the just under 90 advisers surveyed said they would consider outsourcing paraplanning in the future.
Meanwhile, almost one in ten expressed a preference to employing an in-house paraplanner on a full-time basis.
Derek Bradley, chief executive of Panacea Adviser, said paraplanners have become a crucial resource for smaller advice practices seeking to maximise their earning potential post-RDR.
He added: “Against this backdrop, we might have expected to see a sharp uptake in demand for both in-house and external resources, something which makes the lack of popularity surrounding outsourced paraplanners in our latest survey a somewhat surprising result.
“However, in our opinion, this does not suggest that outsourced paraplanners somehow have less to offer than their in-house counterparts, they just need to do more to shout about the time saving and other benefits that outsourcing can bring to adviser firms.”
The study also took the views of Nathan Fryer, director of outsourced paraplanning firm, Plan Works, whom sympathised with advisers who are uncomfortable with the idea of allowing a third party into their business.
“In many ways if I were advising myself, and could afford it, I would most likely look to employ a full-time paraplanner too, he said.
“After all, inviting a stranger into what is quite often an adviser's "life work" can be bewildering.
“It’s this that makes communication so key when it comes to outsourcing, explaining why many outsourced paraplanners actually offer a bedding-in period for the two parties to get to know one another and identify how they can work together.”
Morwenna Clarke, a certified financial planner at Cardiff-based Portland Wealth Management, said the firm has had successful relationships with outsourced paraplanners but has encountered issues around data protection in the past.
She added: “It seems that some outsourced paraplanner contracts don't cover the legal issues around protecting and storing customer data, which could potentially see the adviser breach certain European laws.
“Another issue that may deter some advisers from turning to an external paraplanner is the changing definition of what constitutes a 'worker' under UK law, which may make it difficult to work with an outsourced paraplanner.”
Sean Irwin, independent financial adviser at Stoke-based DFP Wealth Management, said: “There are problems with both really. One of the issues with hiring an in-house paraplanner is cost. They might have nothing to do one month but you would still have to pay the paraplanner’s wages. I outsource paraplanning when I am swamped with work. Unfortunately, I’ve found the standard of work from some outsourced paraplanners has not been to a high enough standard. Outsourcing could work for easier areas of advice like auto-enrolment but not for the more complex stuff.”