Investment Outsourcing

Research results from financial company Defaqto has shown that:

• 45% of financial advisers are outsourcing some or all of their investment management
• This is up from 42% at the end of 2011
• The investment outsourcing landscape has become more complex
• The outsourcing selection process has become more complicated and more demanding

Challenges for Advisory Firms

So we’ve got a growing trend of advisers outsourcing, but at the same time the market is becoming more complex. This poses five core challenges for advisory businesses:

• Understanding the investment outsourcing landscape as a whole
• Understanding the detail of the options available
• Conducting due diligence on potential partners
• Successfully integrating partners
• Operating a compliant and robust client investment proposition

I want to zero in on the last one and talk about an alternative solution – insourcing.

One of the biggest difficulties ensuring that your CIP is compliant is making sure that it is genuinely independent. Recent feedback from advisers who have been discussing their CIP with the FCA has reinforced the importance of this.

However, this can be a problem when outsourcing: you loose an element of independence when you hand your clients over to a DFM or risk ‘shoehorning’ them into a managed fund solution that isn’t appropriate for them.

Retaining Your Independence

Insourcing could be a solution to this conundrum. By insourcing asset allocation and model portfolio advice, advisers can have a simple, robust CIP that they can implement for their clients, but retain their independence and stay at the centre of the client relationship.

Effectively the adviser insources an investment committee that they sit upon, and have the final say on which of the committee’s recommendations to apply to which clients.

In this way, advisers can have some of the efficiency benefits of investment outsourcing whilst still retaining their independence and value in the eyes of the client.

This is exactly how our model portfolio solution works. We think any independently minded advisers should consider it

Original Defaqto figures in the Financial Planner article here.

Thanks

Dan