A new survey by Defaqto reveals a continuing rise in the trend towards outsourcing. David Cartwright, the firm's head of insight, analyses the results
The Retail Distribution Review (RDR) has certainly acted as a catalyst for adviser outsourcing activity, and, for many, this issue is likely to be high on the agenda as 2013 approaches.
Outsourcing aspects of the advisory business to third parties has been a theme of the last few years. It seems the outsourcing trend is set to continue as adviser businesses position themselves for the new distribution era.
Most advisers already outsource elements of their businesses, whether they think of it as outsourcing or not. For instance, 81% of advisers that are directly regulated tell us they use third party support groups or compliance services.
Partners with benefits: the rise of outsourcing
Much of the focus when it comes to outsourcing has centred on investment management. In our experience outsourcing goes much wider than this and also covers platforms, back office systems and paraplanning. The whole matter of trying to de-risk your business also falls in to the outsourcing box.
Advisers will need to consider whether they are best placed to select, monitor and manage clients’ portfolios. Many will decide to outsource some or all of this decision-making to a third party.
If advisers decide to outsource to a third party, there are some key benefits to clients and advisers (see box below).
As ever, robust due diligence is of key importance to ensure appropriate partner selection for the advisory firm and, of course, its clients. The key elements for advisers to consider, regardless of the outsourcing route they are planning to use, are:
- The nature of the investment firm (size, resource, reputation).
- The range of solutions offered by the firm.
- The firm’s investment performance.
- Investment process and philosophy.
- Costs and charges.
- Standard of service provided by the firm.
- Level of expertise in the adviser firm.
- Advice permissions.
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