Some advisers might feel like they are trying to be all things to all clients. Financial planner, financial coach, investment manager, tax expert, the list goes on.
In turn, their clients may be have particular preference for specific softer areas of the planning process, specifics that gives them comfort their savings are being looked after and their objectives met. Have you thought about what specific areas of your process your clients value the most and compared it to where you spend your time?
Outsourcing the investment element of your advice process may allow advisers more opportunity to offer value-added services, such as succession planning or financial education and coaching. Advisers who have outsourced investment management will have more time to spend on clients' planning needs, without the distraction of an investment framework whose shape is constantly being impacted by sentiment driven rhetoric rather than fundamentals and regulatory change. We feel that a great outcome of this action is the ability to increase the number of relationship touch points with clients, leading to clients gaining greater comfort and understanding of their financial world.
Another benefit of outsourcing is that it can provide clients with access to a wider investment universe. Often the DFM to which an advisory business outsources has significant resource behind it, research with access to fund managers, asset allocation capabilities, rigorous fund selection processes, ESG integration, stock-picking skills and sophisticated institutional investment tools. They may also offer a broader range of asset classes and investment solutions than an adviser alone can provide. In turn, these greater opportunities could generate great investment performance and more consistent client outcomes.
One less obvious benefit is that outsourcing puts clients and advisers on the same side of the table. It removes ambiguity, which could arise if an adviser creates a financial plan and also implements those investment activities. By using a DFM, it keeps advisers impartial and better able to critique how a client's portfolio is performing. It creates defined lines of accountability and focuses their client service propositions on specifics within their control.
In the past few years we’ve seen the Asset Management Review, MiFID II, PROD and SM&CR all impact the structure and responsibility of investment management. Outsourcing can significantly de-risk advice firms and reduce administration burden. Switching responsibility for portfolio construction, asset allocation, investment fund selection, ongoing investment management, rebalancing and updating in-line with the developing regulatory backdrop to a Discretionary Investment Manager can reduce advisers' business risk and staff time burden.
Mitigating risk is particularly pertinent in the at retirement client segment. More clients are staying invested throughout retirement, which brings a host of new investment challenges. Advisers need to assess and address additional investment risks including 'ruin age', 'pound-cost ravaging' sequencing of returns, portfolio drift and longevity risk.
Cost savings are a further incentive to outsourced solutions. Advisory firms don't need to maintain costly in-house systems, portfolio management and rebalancing processes. The time needed to ensure clients stay aligned to their risk profile will be greatly reduced if they choose to outsource. Advisers can subcontract the expense involved in research and portfolio construction to an outsourced provider with shared values and investment philosophy meaning that they do not have to compromise on their own beliefs whilst reducing business risk. Advisers could then direct their resources towards activities that generate more revenue for their business and increase client affinity with their advice brand.
BENEFITS TO CLIENTS
- Access to additional resource and investment expertise
- Clearer lines of responsibility and accountability
- Enhanced relationship with their adviser
BENEFITS TO ADVISORY BUSINESSES
- Help to mitigate risk and lower costs
- Access to expert investment management
- More effective management of investment operations
Business benefits - a future-proofed firm
Finally, we would suggest that outsourcing can help future-proof advisory businesses.
So much has changed in our industry in a short space of time. Who can say with any certainty what the advice industry might look like, even five years from now? Pension freedoms were a complete game-changer and interest in pension transfers is unlikely to diminish anytime soon. Outsourcing can undoubtedly help advisers manage these client volumes and the accompanying admin.
What's more, the type of advice required is constantly shifting. With clients staying actively invested for longer, advisers need to use all the tools at their disposal. This could include investment support from a forward-thinking Discretionary Manager.
Clients may need a much broader investment opportunity set to achieve their desired outcomes. This could include multi-asset, target return or enhanced diversification strategies. Values-based investing is another growing consideration.
Our world is moving at an incredible pace, through due diligence and governance, finding an investment partner who reinforces your values and investment philosophy whilst providing the investment engine powering your financial advice might give your clients the outcomes you plan for whilst allowing you to focus your time on the elements they value most..
Invested capital is at risk.