B) Client-side benefits:
• Opportunity for more client relationship time
• Opportunity to perhaps charge lower adviser fees, depending on nature of proposition
• Third-party arguably easier to change
• Best of breed selection
• Access to expertise from specialists
• Client access possible with third-party managers, depending on solution selected
The relationship between the client and the adviser is what drives this business and outsourcing can help clients understand exactly where and how an adviser adds value. Ideally, outsourcing should allow the adviser to charge lower fees and adjust client portfolios more easily to changing requirements or market conditions.
Working with investment specialists may give an adviser’s clients better access to sought-after funds and expertise across various specialist segments.
How to decide whether outsourcing is right
Advisers thinking about outsourcing should base their decision on three elements:
1) Client outcomes: What is best for the client?
Regardless of what the adviser feels they should be doing for their clients in terms of justifying a fee, many are taking a step back and questioning whether they are best placed to be managing, monitoring and making investment decisions on behalf of their clients.
While the investment proposition selected for the client clearly has to be appropriate, suitable and achieve certain fundamental goals, there are additional considerations that need to be taken into account.
Some clients prefer an ‘arm’s length’ service with only minimal communication and others will like the thought of regular involvement and a high level of personal service. Outsourcing options exist that can deliver to client preference.
2) Resource: What is available in-house and what is required overall?
Whilst it is recognised that a number of advisers and firms will be willing and able to successfully run an in-house investment proposition, it is worth reflecting on the considerations which exist before a decision is made.
There are some fundamental requirements for running an investment proposition and advisers need to examine whether they have all the elements in order to achieve the best outcomes for their clients, including:
• Having investment expertise across a wide range of investment types, coupled with long and short term market views - i.e. a tactical and strategic approach
• Having sufficient time to dedicate to building, maintaining and monitoring portfolios regularly and consistently
• Having the correct permissions, particularly if adviser-run discretionary services are employed - even if the investment decision making is undertaken by a third party
• Defending, explaining and taking responsibility for all investment decisions, including those connected to asset allocation and asset class selection, which can often be challenging
It is becoming increasingly expensive to support the levels of research and the time required to manage investment portfolios. Undertakings for Collective Investment in Transferable Securities (Ucits) and Non-Ucits Retail Scheme (NURS) deregulation have widened the range of investment strategies available, and an increasingly wide universe of collectives is available for consideration.
