The term ‘outsourcing' has passed into everyday business language, but for many financial advisers who work with discretionary managers, it doesn't quite hit the mark.
Dictionary definitions typically focus around obtaining goods and services from an outside supplier or employing another organisation to do some of the work. The challenge at the heart of these definitions is to define where responsibilities lie. It's not about abdicating these but working in partnership with a trusted third party.
For many advisers, describing this relationship as a ‘partnership' will be too monogamous - they will have a number of investment partners. Client segmentation should lead to requirements for a range of investment solutions delivered by different providers.
It's therefore of key importance to be clear about ‘who does what?' and where the responsibilities of each party sit.
Two areas to consider are suitability and communication.
Suitability - In the majority of outsourcing relationships the adviser takes responsibility for suitability. This encompasses agreeing the client's attitude to risk, capacity for loss and financial goals. For example, if the client requires a bespoke portfolio there should be a discussion with the discretionary manager to agree the investment mandate and any specific requirements the client has, such as investment inclusions, exclusions and tax planning. The role of the investment manager is to manage the portfolio based on all these financial planning requirements and goals.
In a platform model portfolio scenario, the position is slightly different as the adviser takes responsibility for the suitability and ensures that the model portfolio selected is appropriate for their client. The investment manager ensures the model continues to adhere to their documented mandate.
Communication - In the examples above, the adviser is responsible for ensuring that the investment remains suitable on a ongoing basis and relies on effective, timely and relevant communication from the investment manager.
All parties have clear roles and responsibilities.
The Senior Managers and Certification Regime (SM&CR) effective from December this year, supports these points. SM&CR is not just an administrative exercise but aims to reduce harm to consumers and create a system that holds people to account. In order to achieve this, roles and responsibilities have to be clear. This is also true of the outsourcing model.
In summary, I haven't found a word which could replace ‘outsourcing' because it should describe expert financial planning and investment management which when combined deliver excellent client outcomes. As an investment manager, it's simply about ‘bringing together your strengths and ours'.
Gillian Hepburn, Intermediary Solutions Director, Schroders
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