The advice market has continued to thrive since the retail distribution review – and also experience greater price competition. Coupled with the lack of experienced advisers, firms have to look to new ways of increasing productivity and reducing unit costs. If you are facing that challenge you must have outsourcing on your agenda.

    This is the practice of buying in services that you could probably do for yourself, but for which you do not have the skills, expertise, time, or resources. Importantly, outsourcing is one of the ways in which small and medium-sized advice businesses (from 2 to 25 advisers) can gain access to economies of scale thereby reducing operating costs. It is one of the reasons why small advice businesses continue to prosper and defy the pessimists who claim their time is passed.

    The decision about outsourcing depends on how effectively you are managing the business at its current size. For example, start-ups may only outsource compliance services and retain everything else due to short term cost pressures and the willingness to work long hours. However, as the business grows there will be certain functions that can be outsourced to save money and time, which may not have been the case in the early days.

    The best examples of outsourcing are networks, support services, software providers and compliance services. However the concept also includes:

    Advice support:

    Investment management

    Product and fund research

    Life time cash-flow analyses

    Financial planning software

    Technical support

    Compliance support

    Business operations support:

    IT support and equipment

    Company cars

    Lead generation

    Website development and management

    Newsletter and marketing materials

    Each opportunity for outsourcing has to be treated on its merits. This means that outsourcing may be a good solution for one particular activity but a non-starter for another. In addition, what may be right to outsource for one advice business may be the opposite for another. The following chart summarises the main questions to ask to decide whether or not to outsource a specific activity.

    As the chart shows, the questions need to be split into two groups which will help you make the right decision. Firstly, you should think about the function itself and how important it is. Incidentally, it does not follow that if the function is a core activity it should not be outsourced. For example, investment management is a core activity for most advice businesses and is often considered to be a source of competitive advantage. However there are circumstances where it is right to outsource, in the knowledge that this key activity will be dealt with more effectively and with less risk.

    Secondly, you should ask questions that are specific to the outsourcing opportunity you are considering.

    The following table provides an example of this using para-planning services as an example.

    FUNCTION:Para-planning services ANALYSIS
    Is it core or peripheral? This is an important function –it should increase productivity of advisers but is not a core client output
    Is it a source of competitive advantage? Not directly, although it will underpin excellent advice and compliant and well-presented plans
    Do we have the expertise in-house? Yes – but it resides with the Advisers who are most productive when working with clients – as opposed to researching funds and writing reports
    Are we confident we can manage it if we outsource? Yes – we know what is involved and realise we need to provide a very clear brief which will be an additional positive discipline
    Will it cost less to outsource? Probably because it is flexible – we carry no overhead and will use the service when we need it
    Will it reduce business risk? Yes – provided we select the right provider and make clear the compliance and advice framework that they should work within. Also we will gain a consistent approach to reports across all the advisers
    Is there an opportunity to learn from the outsourcer and bring the activity in-house in the future? Yes – and we will review this and potentially bring it in-house if we have sufficient need for the service and it delivers clear client and business benefits
    Will the quality of the outputs be better than the in-house solution? Yes – because the supplier concentrates specifically on planning support and we will set clear quality requirements
    Can we use the time released more productively by outsourcing? Yes – the advisers will have more client facing time and more effective and consistent reports to present

    As you can see, this is relatively straightforward and enables the key issues to be considered in a logical order. Often the decision is straightforward, but the implementation is more complex. The following chart summarises the process to use to make sure nothing is missed and to demonstrate due diligence where that is required.

    The activity to be outsourced will determine how many possible providers you look at and the extent to which you speak with their existing clients. Investment management and compliance services should be as thorough as the list suggests, whereas product selection software or technical services might be more straightforward.

    Finally, it is always worth re-visiting activities that were rejected for outsourcing in the past. Services and costs change on a daily basis which means that previous decisions should be reviewed because new circumstances may lead to a different outcome.

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