20 Feb 2023
As a financial adviser in tempestuous times, have you considered the impact that investment management outsourcing could have on your business? What exactly is outsourcing? It’s the practice of an adviser delegating part or all of their investment management activities to a professional money manager or outsource provider for a fee. In return, the outsource provider offers a range of investment solutions, off the shelf or bespoke, that are thoroughly researched and monitored by a team of investment professionals.
As an extension of this, investment management outsourcing firms may offer additional services such as ongoing due diligence with active monitoring of strategies and investments and portfolio construction guidance based on a grounded investment philosophy. Pre-built portfolios for a range of client needs, from savings to steady income in retirement are also available to financial advisers, as are custom portfolios for high net-worth clients and those with unique needs and financial goals, along with enhanced services, such as technology, compliance, practice management, marketing, and more…
Why go down the outsourcing route? In a nutshell - to deliver better outcomes for clients in line with consumer duty. Why outsource to experienced professionals? Greater oversight of portfolios in terms of rebalancing, expertise on a large range of products globally and potentially better share prices. Then there’s the know how when it comes to incorporating new and diverse products into portfolios, resulting in a more consistent and professional overall client offering. All this facilitates stronger client relationships, improved client retention, an increase in client referrals and an easier compliance and auditing process. It can also have a direct and positive impact on operating costs and work/life balance. Advisers can turn their focus to other tasks with the confidence that their clients’ assets are being well managed, promoting progression and growth within the business.
A portfolio provider can also enhance the adviser offering when it comes to regular reports, factsheets, and market insights providing pertinent and informative content. Another area to take into account is succession planning – ensuring that the business won’t collapse without the adviser will appeal to consolidators and potentially increase the value of the business itself.
Advisers may feel like they’re caught in a time-consuming vortex at the moment. Portfolio drift experienced by low-risk clients over the last 12 months has meant an increased number of client conversations about moving risk category to get returns. Having the knowledge and expertise to navigate the current economic climate while coping with the need for more client conversations is no mean feat. Managing client relationships and monitoring investments day in and day out is a drain on resources creating an overflowing pot of responsibilities. There may be a shift back to pre-pandemic stability and the adviser may then have more time to manage other elements of the business but right now he or she has a lot on their plate.
Does size matter? When it comes to advisory businesses, demand for outsourcing in the UK has grown. Support, assistance, and expertise during the investment process are more vital than ever. Going back a decade, outsourcing would have been out of reach for many smaller firms as the charges were much higher, but outsourcing is now an option for all advisory businesses, no matter what their size. Fifteen years ago, charges were between 2 and 5% but technology developments in the investment world have meant that outsourcing costs have gone down to a potentially super low 0.15%, allowing smaller firms to tap into the service as it is now more cost effective than ever.
What’s not to like about outsourcing? Well, there’s the cost implication, but it’s now much more affordable, and the benefits mean that advisers can save time and money in other areas of the business. It could feel like a loss of control for a financial adviser but that’s where selecting a firm they fully trust comes in. Asking questions, getting to know potential partners, and carrying out due diligence is all part of the discovery and selection process. How can they add value to the business? Does the potential partner have a robust research process and methodology and a reputation that precedes them? Although letting go of the investment expertise an adviser has brought to the client relationship to date may feel unsettling, outsourcing to experts can add value to the offering and allows advisers to reshape and enhance their proposition.
What happens after? Once the investment management is outsourced, it should become the foundation on which the business can develop and flourish, creating more time, a commodity more precious than most, and enabling advisers to manage their business more effectively.
Building and monitoring portfolios represents a serious time commitment for the adviser but when investment management can be outsourced at an affordable cost, surely, it’s a win-win. Outsourcing may influence and accelerate financial advice being made available to a wider audience. With technological developments in the marketplace, financial advisers can take on clients looking to invest smaller amounts, rather than only considering those with larger pots available.
Aim high – give more to your clients, grow your business and strive for the ultimate – a better work/life balance.
Scott McNiven, MPS Accounts Manager
Katie Poulson, Client Engagement & Marketing Manager
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This information is for UK Professional Advisers only and should not be given to retail clients.The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.
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