As we come towards the end of another year, the minds of many financial advisers are taken up with reflecting on the year just gone and planning for the year. The good news is that the reflections are generally positive, with most firms reporting a strong year behind them, with growth in turnover, assets and hopefully profit too. They generally have been successful in attracting new clients and retaining existing clients. The aim is for more of the same in 2024.
The key challenges that advisers speak to me about are on the operational side of their business. With the growth of their business, comes greater demands on the resources of it. And the primary and most valuable resources – people – are very thin on the ground. Firms are finding it extremely difficult to hire the calibre of people they are seeking. Overlaid on top of this are an ever-increasing compliance burden, technology changing at breakneck speed particularly in the AI space and increasing complexity in managing all the parts of the business.
Help is needed before the business starts to buckle under the strain, and for many firms the answer may lie in outsourcing.
What is outsourcing
The Financial Conduct Authority (FCA) in the UK defines outsourcing as a business involved in an arrangement where a service provider performs a process, service or activity on behalf of a company that the company would otherwise carry out itself.
It is simply the use of third parties to carry out some functions on behalf of the firm. It’s done mainly to reduce the need to involve the in-house team, reduce cost, bring specialist expertise and to ensure some critical core functions are properly delivered.
What services are outsourced by financial advice firms?
With the exception of the core service of providing advice, pretty much every other function is capable of being outsourced. Financial brokers and planners retain the critical responsibility of the provision of financial advice – after all, this is what the clients want from you. Typically, the basic administration services remain in-house too. These ensure that the client relationship quite rightly remains with the core team within the business, who continue to provide the advice and service that the client values most.
But pretty much every other function is secondary, at least in the client’s eyes, and can be outsourced if this makes sense. For example, if the team are already flat out with delivering quality advice and service, there may be no more capacity to look after these additional functions. Common functions that are outsourced include,
- IT: Most advice firms don’t have an in-house IT resource but utilise an external service provider for IT and data security services, network management and staying attuned to technology advances.
- Paraplanning: With the growth of financial planning as a core service and the increased depth and complexity of financial plans being delivered, an increasing number of advice firms are now using 3rd party paraplanning services to develop their financial plans. The relationship and delivery of the plan remains with the adviser, with the paraplanner working in the background on the development of the plan.
- Marketing: Most firms don’t have an in-house marketing expert and after spending time and money (each of which is in short supply) on campaigns that didn’t meet expectations or on trying to deliver regular communications to clients, they recognise the value in utilising third party expertise.
- Compliance: While retaining all regulatory obligations, many firms now utilise external compliance resources to ensure they stay up to date with their existing responsibilities while also being kept informed of all new requirements. This is one area that firms cannot afford to get wrong.
And then there’s the rest… Examples include external HR consultants to help them recruit and develop professional HR standards and external trainers to help develop the skills within the team.
The benefits of outsourcing
These are numerous. The primary benefit is in enabling the core in-house team to focus on where they add the most value – delivering to clients. Equally important is the access that is gained to specialists, as opposed to muddling through tasks yourselves that you may not have the skills for.
Operational efficiency should also ensue as the third party providers specialise in these areas and should be able to complete the tasks quicker, at lower cost and to a higher standard. They also will ensure that your firm is leveraging the most advanced technologies that otherwise you might be unaware of.
What are the steps to outsourcing?
The place to start is within your own business, considering your operational effectiveness. What are the tasks that you should be doing, that you’re just not getting to? Once you consider this, then you can start thinking about external partners.
The key then is to identify a partner who will meet your exact needs. Speak to other financial brokers, check out industry publications or speak to the likes of Brokers Ireland who may be aware of providers of the services you are seeking. Where possible, seek partners who have a deep knowledge of the world of financial brokers so that you don’t have to spend your time educating them! After identifying a potential provider, outline what you need and seek a proposal from them. Check their references and closely examine their costs to ensure you will gain enough value from their services. Would you be better off hiring another person instead?
Consider the risks – could a third-party underdeliver and end up damaging your brand? Even worse, could their services land you on the wrong side of some of your regulatory obligations? Or could they simply underperform and be a waste of money? Challenge the 3rd party and again, seek testimonials from similar firms to your own.
And then review their performance regularly. Are you gaining the benefits you expected and does outsourcing remain the right approach for you?
Maybe 2024 is the year that you will build some excellent outsourcing relationships to enable you to maximise the potential of your business.