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Why 'out'sourcing is the 'in' thing

January 2019

With significant demands on time and resources, advisers might be feeling stretched to capacity. Outsourcing day-to-day investment management responsibilities to a discretionary fund manager (DFM) is one way to alleviate the strain. This is pertinent in current volatile market conditions, when rebalancing clients' portfolios can be particularly challenging.

Client benefit - advice without distraction

Some advisers might feel like they are trying to be all things to everyone. Financial planner, investment manager, tax expert, the list goes on. In turn, their clients may be feeling a little short-changed when it comes to their relationship. Can they really be receiving their adviser's full attention when he or she is juggling so many roles?

Advisers who have outsourced investment management will have more time to spend on clients' financial planning needs, without distraction. Meanwhile, clients will likely feel the benefit of their adviser's undivided attention. Outsourcing may also allow their advisers more opportunity to offer value-added services, such as succession planning or financial education.

Another benefit of outsourcing is that it can provide clients with access to greater investment expertise. Often the DFM to which an advisory business outsources has huge resources behind it. Global research, fund selection and stock-picking skills, for example. They may also offer a wider set of asset classes and investment solutions than an adviser alone can provide. In turn, these greater opportunities could generate better investment performance.

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.

A less risky business?

Crucially, outsourcing can significantly de-risk advice firms. Switching responsibility for portfolio construction, investment selection and rebalancing to a DFM can reduce advisers' liabilities.

Mitigating risk is particularly pertinent in light of pensions freedom. More clients are staying invested in retirement, which brings a host of new investment challenges. Advisers need to assess if they have the skills to address complex issues like 'ruin age', 'pound-cost ravaging' and sequencing of returns. Then there's the ever-increasing scrutiny around pension transfers on top of all that.

Given the greater propensity towards income drawdown during retirement, more clients need long-term servicing. This is completely different from the old annuity-based retirement model. It involves a greater burden of paperwork and record-keeping, which outsourcing could help reduce.

Cost savings are a further incentive to outsource. Advisory firms don't need to maintain costly back-office staff and in-house systems if they choose to outsource. Instead, they can subcontract the expense involved in research and portfolio construction, for example. Advisers could then direct their resources towards activities that generate more revenue for their business and increase client loyalty.

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
  • A business fit for the future

Business benefits - a future-proofed firm

Finally, we would argue 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? Pensions freedom was 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. To keep up, advisers need to use all the tools at their disposal. This could include investment support from a forward-thinking DFM.

Clients are also likely to need a much broader investment opportunity set to achieve their desired retirement. This could include multi-asset, target return or enhanced diversification strategies. Values-based investing is another growing consideration. These strategies can be difficult for advisers to replicate in-house.

Outsourcing investment management to a DFM focused on developing next-generation products could help position advisers for even greater success.

Invested capital is at risk.

Find out more about our Managed Portfolio Service.


Investment involves risk. - The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested. Past performance is not a guide to future results.