Added to this, the RDR has also widened the range of packaged investment vehicles that should be considered for each client if the advisers wishes to remain independent. Fund types such as Exchange Traded Funds (ETFs), unit trusts and Open-Ended Investment Companies (Oeics), among others, must all be considered for client portfolios.
3) Strategic considerations
Constructing a Centralised Investment Proposition (CIP) can help lead to consistency of advice to similar client groups, assuming client segmentation has been done thoroughly.
• Using third parties to undertake the investment decision making can help to de-risk the adviser business. Responsibility for the right advice, suitability and due diligence on the selected outsourcing partner still lies with the adviser (see below), but other responsibilities that the third party has been commissioned to undertake are effectively delegated
• It may simply be a cheaper alternative to use the expertise of third parties rather than building a proposition internally
• Some advisers will see the outsourcing of investment as an opportunity to re-focus on applying the core skills of financial planning or simply focusing on other client-centric work
• Client relations can often improve if the adviser is on the ‘same side of the table’ as the client as they work together to select the most appropriate investment solution. Adviser/client relationships can get more strained if advisers find themselves having to defend their own investment decisions
Due diligence checklist for investment outsourcing:
• What is the type of outsourced service required? What does the client need and is the adviser’s client segmentation robust?
• Has the adviser generated a group of potential service providers - i.e. have they looked at the whole market?
• What does the adviser need and have they identified a desired process?
• Have key ‘selection criteria’ and importance levels for each been defined (service comparisons)?
• Do all parties (client/adviser/provider) understand the reporting process and administrative processes?
• Have charging structures been defined (a good look ‘under the bonnet’)?
• Has the adviser compared the various access methods, considered all implications of routes into the investment solution?
• Have service providers been shortlisted for the full due diligence questionnaire and negotiation process?
Once a suitable service - or panel of services - has been employed it is crucial for advisers to periodically review the suitability with a full audit of investment solutions quarterly, six-monthly, or at least annually.
Initial and ongoing key considerations when monitoring outsourced investment processes include:
• Company/parent size, credit ratings and financial strength measures
• Style and approach of investment service
