Along with this increasing trend towards outsourcing, the investment outsourcing landscape itself has also become more complex. Financial advisers have significantly more options available to them and it is widely recognised that the selection process is now more complicated and demanding.
According to Defaqto, this raises five core challenges for advisory businesses:
- Understanding the investment outsourcing landscape as a whole and, importantly, the variations within the core themes
- Understanding the detail of the many options available, to be able to assess how they might support their client advice proposition
- Conducting a robust due diligence process to ensure they select an appropriate solution and partner(s)
- Successfully integrating that partner or partners into their processes and proposition
- Operating a compliant and robust client investment proposition
Fraser Donaldson, Insight Analyst - Wealth Management at Defaqto, said:
"It is well known that there is a growing trend towards investment outsourcing among advisers. The flip side is that the industry has responded with an increasing range of outsourcing options for advisers.
"There are many options and it can quickly become very complicated. Essentially, there are two core outsourcing solution types: managed funds or segregated portfolios. Under funds there are several subsets, but the ‘managed' solutions tend to be multi-asset and/or multi-manager (whether ‘fund of funds' structure or single manager).
"Segregated portfolios tend to be run by discretionary managers and investment houses either directly or indirectly. There are of course subsets within this high level taxonomy, and it is important to understand the subtleties and differentiators. Terminology itself is adding to the jungle of available outsourcing options.
"From understanding the broader investment outsourcing universe to selecting specific partners, there is a great deal for advisers to consider when looking to use investment management specialists."
