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An area of the intermediary market that has unmistakably seen growth over the past 18 months is the use of outsourced investment solutions. This is understandable post RDR as adviser firms look to improve the efficiencies in their businesses. The choices are numerous, from a full service DFM solution or use of a guided architecture solutions to the use of multi-asset and manager funds. The space is crowded with solution providers leaving advisers with an enormous task to identify the differentiators and the pros and cons of each type of solution. With the added pressure of ensuring that each solution fits each of their client’s needs – importantly that is “their“ needs, not that of the adviser firm, that aspect is paramount in the final recommendations.
The advantages are pretty clear to advisers: time management and the ability to use their resource where it really matters. However, spending more time with their clients is the clearest and more important benefit from the research project we ran into the market. This coupled with a perceived feeling of “de-risking” the adviser firm of some of the compliance pressures managing money day to day can create. Many admit to not having the skill set or research function to run client money actively and with the market volatile currently the ability to maximise returns. This skill is necessary to deliver the more ambitious growth desired by those less risk averse of their clients.
With all this said it is easy to see why this is the route of choice for more and more advisers. But it’s not for everyone as this approach isn’t without its own pitfalls and some adviser firms have had their fingers burnt in the past and will remain staunchly against this as a solution. Why? Firstly, it requires a huge degree of trust on the adviser’s part in the partner they choose. Secondly, they must have confidence in the value of the service that they offer to their clients to ensure they are not paying a premium for mediocre work. Lastly, a deep set worry of losing the client to the solution provider, or of the provider making them appear inefficient and threatening the relationship.
There is also the spectre of the regulator’s glare being drawn to those adviser firms who haven’t done the necessary due diligence on the outsourcers that they use. Believing that simply appointing someone for their brand name is sufficient to keep the FCA from their door. It is without doubt a solution that will attract many adviser firms, but intermediaries must be prepared for a thorough review process using the tools available to them.
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