A survey carried out by Skandia found that 66% of the approximately 200 financial advisers questioned said they expect to use an outsourced portfolio management service in the next two years. Those taking part also reported that the average proportion of their clients which they expect to provide with outsourced services is 46%.
Skandia’s £141bn estimate is based on combining the survey findings with the predicted size of the adviser market in 2016. Today the amount of outsourced assets under management is just £52bn.
The greater level of scrutiny that providers are under post RDR is a key driver for the trend, Skandia's head of investment marketing Alistair Campbell explained. “Post RDR the increased transparency in the cost of financial advice has heightened the need for advisers to demonstrate the value of their service,” he noted. “Many clients will not need or see the value in having a bespoke portfolio built for them and outsourcing can not only help to reduce costs, it allows advisers to spend more time focusing on building client relationships,” he added.
In terms of the type of service being used, most common are discretionary fund management, multi-manager funds, multi-asset funds and managed portfolio services run by a third party provider, according to Skandia’s survey.
Of the respondents 63% of those which outsourced said they did so because it allowed them to leverage on expertise outside of their own businesses, 49% said they believe the investment expertise of a third party provider is the most important factor when considering outsourcing and 54% said reducing risk to their business was a key benefit.
Campbell did sound a note of caution by pointing out that while outsourcing has some significant advantages it will not suit all clients. “As with any investment proposition suitability is key, an outsourced solution may not be appropriate for certain clients who perhaps have niche requirements,” he said. “Financial advisers should conduct thorough research on the solutions they offer and maintain ongoing reviews to ensure they continue to match their profiles,” he added.
This developing trend towards outsourcing is here to stay for some time, according to Campbell. “We believe platform-based portfolio solutions which offer access to the kind of wealth management that would only previously be available at significant cost, will continue to grow for a number of years, and well beyond 2016.
