Outsourcing has become such a familiar feature of the adviser landscape in recent years that it has become common practice for many advice firms. Giving third parties the permission to run and rebalance client portfolios has been a solution to regulatory, resource, and investment consistency pressures.
Outsourcing works well for many firms, but some are now exploring the option of an Insourcing relationship, which allows advisers to continue to input into the investment process while still letting a third party like PortfolioMetrix take on most of the burden.
For advisers that have grown tired of the limitations of running advisory models, Insourcing allows adviser businesses to use a DFM’s discretionary powers to remove the workload and inefficiencies of running those models in-house.
For example, it removes the pain point of having to request approval from every client for each portfolio adjustment.
Some firms are looking for a halfway house. They still want control over their investment process, but the in-house option is no longer feasible because they want to focus their limited resource on financial planning and spending more time with their clients. Insourcing can be the ideal arrangement that sits between adviser-built models and full-fat outsourcing.
Take back control
More advice firms have been enquiring about our Insourcing investment service including MPA Financial Management, which joined us as an Insourcing client recently.
The benefits to advice firms of Insourcing can be considerable and address many of the issues with which advisers are currently grappling.
MPA, which ranks in New Model Adviser’s top 100 advice businesses, said it wanted to use its size and scale to offer a range of different solutions to which it can contribute, and which also protects its client relationships as more and more large investment providers are targeting end-clients directly.
For many firms, the chief advantages of Insourcing are efficiency and control. Using our discretionary powers reduces adviser workload but keeps their brand front and centre.
Insourcing relationships aren’t – or at least shouldn’t – be cut-and-paste jobs or white-labelling of an existing off-the-shelf solution. Firms should be able to choose the level of input they want, ranging from a relatively hands-off “check-and-challenge” relationship to full involvement in each stage of the investment process. We believe flexibility is a key differentiator for us and are happy to talk and explore with suitable firms about the balance that would work best for them.
Not for everyone
The Consumer Duty has served as a reminder to advisers that the responsibility for ensuring their clients get suitable, consistent advice and good investment outcomes ultimately lies with them. That might not always feel realistic when investment processes are wholly outsourced to a provider, particularly for larger firms that intentionally run them at scale.
Outsourcing clearly still has a massive part to play in the world of financial advice and investment solutions, and for the majority of firms, it’ll likely remain the best option. But for advisers that have clear ideas on the portfolios they want to run, their desired asset allocation, and where they stand on matters such as the balance of passive and active funds or ESG, Insourcing offers that bit more control.
Insourcing works best in collaboration with an investment partner that is able to build and maintain models that are genuinely unique and designed specifically for the needs of that firm’s clients. Firms get a risk-rated range of models that are shaped by the advice firm’s own investment philosophy, built in alignment with its chosen risk profiler and made available on their preferred platforms.
Those models are built using our discretionary permissions, which means that from a regulatory perspective, the adviser has a degree of input but isn’t exercising discretion.
The peace of mind that comes from this, not least in relation to the Consumer Duty, PROD and other regulatory requirements, is especially valuable when the investment landscape is as challenging and fast-moving as it is currently.
