Costs are main concern when outsourcing, say advisers

clock • 2 min read

Partner Insight: Over half of advisers (52%) say 'associated costs' are one of their biggest concerns if they outsource their investment management, according to a Twitter poll among Professional Adviser followers

This is no surprise, says Kerry Nelson, Managing Director of independent financial advisers, Nexus. Nelson believes advisers should put costs "high on the list" of things to consider before outsourcing. She says: "Costs should be a driving force in the adviser's decision to outsource; because it is all well and good outsourcing, but if there is an implication that drives the cost up, that negates the value it provides to the client, as an end result of their returns, then you are doing your client a disservice, because if the fees are too high, then there will be an impact upon that total return."

Compromise needed

Nelson believes that advisers should reach a compromise between trying to secure the most competitive deal on the "outsourced investment side of things." Advisers should not only be looking at what the investment charges are on an ongoing basis, but they need to look at their own charges." Track record of the investment manager? The second and third concern for advisers, according to the Twitter poll, is the track record (18%) and suitability (17%) of the investment manager.

Selection under scrutiny

It is easy to see why this might be troubling. Each approach differs greatly, meaning advisers have to make sure they select the most appropriate one for their client. Also, as a worst case scenario, the relationship might not be a good one, and it could in turn threaten the relationship between the client and adviser. Nelson says: "The suitability and track record of the investment manager is very much the adviser's responsibility. Not only picking them at the start, but their responsibility with the ongoing appropriateness of that manager.

"However, it is such a competitive environment it is easy to see how well one is performing against another." Nelson offers a piece of general advice: "People need to ask more questions when they are engaging in a relationship with an outsourced investment manager in relation to their terms of engagement, who owns the client and setting up a review on an ongoing basis." She doesn't believe that ‘red tape' - the fourth concern expressed by advisers (13%) in the Twitter poll was a big issue.

 

To understand how greater regulatory scrutiny is driving the outsourcing boom click here to read our adviser guide.

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