Partner Insight: The rise in demand for DFM and multi manager solutions has been largely driven by new mandates from the regulator, says James Bampton, head of UK intermediary distribution at Architas
New regulation has been one of the drivers of investment outsourcing and today's adviser needs to work out where the real value is for them and their business. Is it in providing the investment piece in-house with the associated hours spent on fund selection, or are they better off focusing their time on financial advice and engaging with their clients?
Are there any ‘negatives' associated with the outsourcing process?
Advisers recognise the need to maintain due diligence on their outsourced partner. Simply picking your provider and then forgetting about it is not sufficient from a regulatory point of view, or from a client management point of view. From a regulatory perspective the onus remains on the adviser to ensure that whomever they select - whether a DFM or a multimanager or even their own in house proposition - the provider is appropriate for their client's needs. It's not a question of coming back in five years' time to review the process; it really has to be considered on an annual basis.
How can outsourcing help the client?
I think the other way that we can help is by assisting the adviser in their due diligence of our firm. It comes back to making sure that they are able to confirm both to the client and to the regulator that their investment selection is appropriate. From Architas' point of view that is about staying within the ‘risk bands' that we and the client have decided are suitable for them, along with the adviser. We have something called a ‘volatility proof statement' which means we can prove each month whether we are in or out of those risk bands. It helps reassures both the adviser and their client.
What next for outsourcing?
The next step for outsourced providers is to support the adviser in their client engagement. We are investing in some online tools that will enable advisers to engage with their clients regarding their attitude to risk and to look at the suitability of those investments for those clients. The tools will help the adviser work with the client to set the level of risk they are willing to take. And also communicate to the client how a particular portfolio is invested and how it's performing, on an ongoing basis - not just in terms of capital but also in terms of the level of risk that it's taken.
To understand how greater regulatory scrutiny is driving the outsourcing boom click here to read our adviser guide.