The former head of equities at Morningstar, Andrew Doherty, is urging advisers to outsource investment management and focus on spending more time in front of their clients.
Doherty, who is now the director of AssureInvest, says outsourcing has allowed one advisory firm to double their fees for some clients, but cut the time spent on investments by about 80 per cent.
“Advisers’ competitive advantage is their client relationships,” Doherty says. “But they’re spending little time in front of their clients. It’s about focussing on where they’re adding the most value.”
The comments come advisers move to outsource various functions, including paraplanners, to both local and offshore operators, in a bid to become more efficient, free up time for greater client face-time and focus on higher value-add services.
It also comes as a number of robo investment services, such as Macquarie’s OwnersAdvisory, seek to become outsourced investment managers for financial advisers. Macquarie is working on developing a B2B version of OwnersAdvisory that will target advisers. OwnersAdvisory, which until now has focussed on retail clients, uses institutional-level technology to scan 30,000 investment options, then develop an investment strategy and produce a statement of advice.
Doherty says advisers should also consider outsourcing some or all of their investment management, including tactical asset allocation, security and fund selection, execution and monitoring, and risk management.
“They’re spending too much time on stock picking, administration and compliance-type work, and not enough time deepening their understanding of the individual needs of customers and providing innovative solutions.”
Twice the fees
Doherty says that advisers could spend a significant amount of time on investments, but still not deliver the right outcome.
“They can spend a huge amount of time and might get the call wrong and the returns for the client might suffer,” he says.
He says advisers are also facing an increasingly difficult and volatile investment environment, with increasing volatility on the back of anaemic global growth, transitioning of the Chinese economy and possible global rate rises.
“Rather than do all the work themselves, it makes a lot of sense to break up the work and call in experts and delegate some of the day to day work to groups that are focussed,” he says, adding that advisers’ businesses need to become more scalable and develop repeatable processes.
One Sydney-based accounting and wealth adviser practice, CS Wealth Advisors (CSWA), doubled its fees for clients, with investable funds of $200,000 or more after it outsourced investment management.
It also cut time spent on investment research and portfolio construction by around 80 per cent, and time spent on monitoring investments fell almost 30 per cent.
Doherty says mounting investment work meant CSWA’s principal was beginning to feel overextended and drained. Clients were also seeking more transparency than they were getting from the managed funds the firm was using. CSWA wanted to move to direct security holdings, but the research and other work was unfeasible.
Boosted efficiency
After outsourcing investment research, CSWA has boosted efficiency. The principal has more time for oversight, managing internal resources and growing the customer base, Doherty says. Revenue has also increased because it has been able to offer more value through a reliable and transparent investment approach – including a better risk return profile – which has led to fee rises.
Doherty says some advisers are concerned about issues, including a loss of expertise within the firm, and he says firms should only partner with investment specialists committed to deep and open relationships, that involve the adviser in the investment process.
“Outsourcing does not mean abdication of responsibility,” he says.
“Advisers should have ownership of the investment approach and the security selections and be able to confidently communicate these to their clients. Investor customers typically respond well to having their adviser, backed by a team of specialists, in control of their financial affairs.”
“But to make a difference, advisers need to increasingly become the key central care giver, by developing that deep knowledge of their clients’ needs, and providing very valuable, holistic strategic advice.
“To be able to do that, it makes sense for a number of adviser firms to be supported by external specialists.”
