Why outsourcing benefits advisers’ business models

Advice firms are under pressure to evolve their operations to help bridge the advice gap and attract new clients. In the Future of Advice – State of Flux, AKG examined the ways that outsourcing investment management can benefit advisers and help them achieve business goals.

| 4 min read

Advisers have been parting company with some ‘lower value’ clients because they can no longer afford to service their needs, according to the report.

The recently published research paper analyses the future for financial advice, showcasing a more defined role for advisers. One that focuses on where they add the most value: developing long-term, trusted client relationships, and designing financial planning strategies that keep clients protected and their financial futures secure.

Over half of consumers (56%) value the peace of mind that comes from having a plan created by a regulated adviser who understands their personal financial situation. Yet less than 1 in 10 (9%) consumers had an interest in who looks after the day-to-day management of their assets.

It begs the question whether advisers could reap immediate time benefits from outsourcing certain functions?

The future of the advice market

The advice market is in a state of flux because of the ever-changing economic backdrop and regulatory developments. Managing clients’ money and providing one-to-one financial advice has become more costly than ever before – not only in monetary terms, but also in resource terms.

Regulation has played a big part. Since the RDR review in 2012, firms now have a greater responsibility to ensure they’re meeting and reporting on the set of standards laid out by the regulator.

The regulatory bar is now being raised higher, with the introduction of the FCA’s new Consumer Duty directive, requiring firms to ensure they’re delivering good client outcomes throughout their proposition and service offerings. It’s estimated that costs added by Consumer Duty could rise significantly, with 92% of advisers saying running costs for their business will rise.

The economic backdrop has played its part too. Rising inflation and the cost-of-living crisis have made consumers more cost conscious, adding further downward pressure to advisers’ costs and the profitability of providing advice.

How outsourcing could improve advisers’ models

Advice firms are under pressure to continue to evolve and find innovative ways to help bridge the advice gap, by encouraging more consumers to take advice as well as continuing to service existing clients in a cost-effective way.

For many advisory firms, outsourcing the management of client’s money through a discretionary management service comes with a whole host of benefits. It simplifies the investment management process and leads to better commercial and client outcomes by lowering the overall cost-to-serve.

More importantly, it allows advisers more time to focus on creating more value and better outcomes for clients by focusing on core activities – managing the direct relationships and making the business more scalable.

What are the benefits of outsourcing investment management?

  • Focus on core activities – delegating businesses activities that fall outside the firm’s core offering, allows more time for advisers to focus on maintaining and improving relationships with their clients.
  • Reduce risks – outsourcing the management of investments to an established investment house, with expert research teams and asset allocation models, can mitigate some of the risks of investing in financial markets and increase each portfolio’s performance potential.
  • Cost savings – firms that specialise in one particular area are likely to carry out some activities more efficiently and benefit from economies of scale, making it cheaper to outsource to a third-party partner rather than acquire additional staff and resource in-house.
  • Competitive advantage – by outsourcing, advisers can position themselves with more competitive pricing models. This can be attractive to potential clients who have previously avoided financial advice for cost reasons.

This addresses an important concern for advisers surveyed by AKG, of which four out of every ten said marketing costs or attracting new clients was their biggest worry.

The bottom line

Consumers will continue to value financial advice because of its human touch and level of personalisation to their own circumstances – a direct relationship with someone who they can trust to meet their long-term objectives in a cost-effective and tax-efficient way.

However, clients have less of an interest in other areas of the financial planning process, such as investment management. Partnering with a dedicated discretionary investment manager could help to remove one step of the process, and give back advisers value time to focus on what really matters to their clients.

Read more about the future of financial advice by downloading our latest report in partnership with AKG.

Download the report

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

AKG Research Paper 2023

How will financial advice evolve in the coming years? Download your copy of the research paper on the future of advice, written in partnership with AKG.

See more

More insights

Is it time to consider investing in Europe?
By Chris Ainscough
Director of Asset Management
28 May 2024 | 5 min read
Investing in infrastructure – reasons to be optimistic?
By Benedict Tottman
Multi Asset Strategist and Portfolio Manager
28 May 2024 | 4 min read
Inflation-linked bonds – locking in a real yield
By Oliver Faizallah
Head of Fixed Income Research
29 Apr 2024 | 4 min read
Global smaller companies – what are the prospects?
By Chris Ainscough
Director of Asset Management
27 Mar 2024 | 7 min read