Next Page

To outsource or not to outsource the investment management process? Survey results analysed

  • By Sue Whitbread

A recent IFA Magazine survey, carried out in conjunction with R.C. Brown Investment Management, asks advisers for their experiences and finds that it’s about a whole lot more than performance.

There is no doubt that this is now a key strategic decision for adviser firms to get right. In principle, outsourcing your investment process has many benefits, but running portfolio management in house can also be a successful strategy. Outsourcing allows you to focus on what you do best – building and maintaining long-term relationships with clients as part of the financial planning service. But in practice, when it comes to using expert involvement with the investment decisions, does it really help or hinder?  From the recent survey* carried out by IFA Magazine in conjunction with R.C. Brown, it seems that outsourcing really does help. The survey was designed to provide insight into adviser thinking and experience on this important matter.

Both IFA Magazine and R.C. Brown would like to thanks each of the 169 advisers who took the time to respond to the survey. Of those respondents, roughly two thirds were outsourcing their investment management business.  Of those, a massive 98% of respondents told us that they were satisfied with the service they get from their DFM or DIM. When asked why they had taken the decision to outsource, 47% told us that it was to improve risk/portfolio management,  which highlights a key benefit to outsourcing this role to a specialist in the field.

For 28% of respondents, having access to a broader range of investment solutions was key, while 17% said it was because it allows them to focus on running the business.    Just under 90% of respondents either solely utilise a discretionary manager or use this service in conjunction with a wrap platform or model portfolio service. This shows how advisers value the flexibility that a DFM can offer, catering for different investment requirements, service levels and portfolio size/types.

We asked advisers what were their main considerations when selecting a discretionary fund manager (DFM) or investment manager (DIM) to work with. The top five in order of importance were: Value of service, transparency of charges investment process/philosophy, performance and cultural fit/relationship management/client service.

The survey also revealed that 47% work with 2 or 3 DFMs with 25% using just 1.  On average, it appears most firms (59%) will review their arrangements with DFMs annually, with 20% undertaking six monthly reviews. While only a small sample, it appears there are two clear drivers of advisers considering outsourcing – regulatory pressure (including demand for qualifications) or freeing up time to focus on advising clients and accordingly improving the service they receive.

Last but not least, when it comes to performance-related fees, approximately two thirds of advisers who responded are in favour of this although there are not many DFMs who offer this option in practice . Alignment of interests is clearly the direction of travel.

While only a small sample, it appears there are two clear drivers of advisers who are currently considering outsourcing the investment function in future. Those are regulatory pressure (including demand for qualifications) and freeing up time to focus on advising clients and accordingly improving the service those clients receive.

Glenn Meyer of R.C. Brown comments: “We were delighted by the quality and number of responses to our survey, which unequivocally showed that IFAs and their clients benefit from outsourcing the specialist job of managing money. There were some well-informed comments which recognised that delegating portfolio management to a specialist DFM allows an IFA to have more time to build those all-important, client relationships. We are equally prepared to spend as much time as is needed for advisers to understand the way we manage money and we are always happy to meet clients with their IFA.

“We understand that some advisers want to keep as much as possible in house. But the resources needed to be a fund manager are considerable and many now recognise that they can’t do everything to the high standards that their clients rightly demand. So, it is good to see that respondents are overwhelmingly open-minded to the possibility of using outsourced investment management.”

Finally, the IFA Magazine team wish to add our congratulations to Carl Mountain of Generation Financial Services, who was the lucky winner of our prize draw. He won £250 worth of John Lewis vouchers and is pictured above (left) receiving his prize from Wayne Sawyers of R.C. Brown.

*Source – IFA Magazine/R.C Brown  Survey Spring 2017 – 169 Respondents