Implemented Portfolios practice development manager Katie Gill said that over the past six months, she has seen a “significant increase” in the number of financial advisers looking to outsource “non-core” business functions such as investment management.
However, an informal poll conducted during an IP webinar found that 62 per cent of the 28 respondents were concerned about outsourcing as they were unsure “how they would justify their advice fees”, while a further 50 percent were concerned about investment performance.
“What’s interesting is how many of these concerns link back to an issue of control for the adviser,” Ms Gill said.
“Advisers are looking for a more efficient way to implement investment advice for their clients, but they want to ensure that they retain control over the process and that the client experience and outcomes are first-rate.”
Ms Gill said that while advisers feel they are able to control the investment process by picking fund managers and shares, this is not always the case.
She said that by outsourcing, advisers can often increase efficiencies and scale in their business and reduce costs.
In addition, advisers are able to focus on their core task of strategic decision-making.
“Many advisers believe that by picking fund managers or shares for their clients they are in control of the investment process,” Ms Gill said.
“We would argue that the opposite is actually the case, and advisers are realising that they in fact have little to no control over fund managers and when the market turns they are forced to choose between firing the fund manager or persisting with the traditional ‘buy and hold’ approach.”
Mark, the problem with outsourcing is that they don’t know everything the client has, are likely to buy more of the same and even when you use them just for certain sectors the cost savings after the advisers’ admin aren’t really there imo. And yes, Gerry I agree, the day we say investment management is non core is the day we should stop pretending FP is best done via a university course.
Gerry and Mark you both make valid arguments. The last few years has seen advisers bag each other for the approach they take for managing clients funds rather than acknowledging the pros/cons. We actually use Gerry’s approach for some and Mark’s approach for others. Based on client preferences/needs.Interesting that one of the criticisms of CBA was that they had a one size fits all approach to their clients.
Thanks Mark. If using an MDA service can provide my client with a reliable cashflow in a tax and cost effective manner I might consider it. I used an SMA years ago and the amount of constant small trades they did was unbelievable and the costs high. I went back to using index funds pretty quickly.
Certainly not Gerry, you’ve reiterated my point which is that very few advisers manage their clients assets but they create the illusion that they do and that this is a core function and their value proposition to clients. I challenge that this is the case, progressive advisers are far more interested in creating a value proposition around planning and strategy. MDA operators are a broad church like all things there are some good and some bad but likely no more risk than any other out-sourced investment service. My experience is that the good ones provide the best possible outcomes for advisory businesses and their clients.
Are you writing some sort of testimonial there Mark? Regardless…someone is managing your client’s assets and it’s not you. It’s one entity. If that MDA operator stuffs up then all your clients are affected. Feel free to correct me if I’m off track here and I apologise in advance if I am.
Gerry the truth of the matter is most advisers that think they run investment management actually don’t. Picking a managed fund isn’t investment management its picking an out-sourced fund manager. Conversing with a broker to pick your clients stocks isn’t investment management either and if you are picking stocks for clients your business will likely have no scale. The investment piece for advisers in my opinion is totally non-core however when selecting your out-sourced option make sure you have some control, certainly not the case with managed funds!!
Why would investment management be a “non-core” business function? Would the adviser’s clientele think otherwise? Strategy is not separate from investment management…they are intertwined. The investment strategy involves cashflow, tax and risk tolerance which will vary depending on each client’s situation. I’m not sure how outsourcing this “non-core” function can help satisfy the “know your client” rule. Just my opinion of course. Advisers run differing service models and that’s fine too. I’d rather see big SOAs outsourced to history so we can spend more time on strategy and investment management.