Breaking out of the back-office

The decision to outsource a business’ non-core functions is not unique to the financial planning industry.

And yet, while the issue of outsourcing transcends industry boundaries, it remains one of the most, if not the most, perplexing of business management decisions.

Outsourcing is a big hurdle for many financial planning businesses because it represents a significant change to a basic business model that has worked well in the past.

While a financial planning business may have handled all back-office tasks — including administration, education and compliance — the decision to outsource such capabilities is to acknowledge that someone else can now do it either better or more cost effectively.

According to Strategic Consulting and Training (SCAT) consultant Angela Clarke, the best way for financial planning practices to approach the outsourcing decision is to look at it as an investment rather than a cost.

“It is not really the size of the practice that guides the decision [to outsource]. It’s more an issue of looking at core constraints. That is, when administration and compliance gets in the way of the business doing whatever it does to be profitable,” she says.

Investing in an outsourcing solution then becomes an issue of maintaining the sources of prime revenue for the business, without getting caught up in the areas that do not generate revenue.

Clarke says if a business is currently spending more time on back-office functions than servicing and meeting clients, then it may be time to address the core strengths of the business and whether the present model will service future business needs.

She says in the past, particularly in the case of independent financial advisers (IFAs), many financial planning businesses viewed outsourcing as a cost-driven decision. But today, with greater industry emphasis on compliance issues, the industry as a whole is looking at how to achieve greater efficiencies.

As part of this shift, planning businesses are asking who they can partner with to achieve greater efficiencies and what a partner can bring to their business.

“We are finding more than ever with IFAs that they are asking ‘should I be partnering? Can I still operate the way I have done in the past?’” Clarke says.

Another important aspect of outsourcing is making the most out of the time that has been freed up from administrative tasks.

According to ThreeSixty general manager Greg Miller, outsourcing is not just about taking processes away from the business, but also about what tasks the business is going to take on to better utilise its resources.

In this way, the outsourcing decision also emphasises the skills of the planners and the value proposition of the business. The efficiency of the planning business is brought into focus along with the skill pool of the business.

Miller says when ThreeSixty talks to financial planning businesses about outsourcing and creating efficiencies, it principally concentrates on the business’ current processes.

“We ask, ‘how can we help you with the process,’ and start to identify where their skills are. And the things they need to keep are those that are key to their value proposition,” he says.

Research conducted last year by Dashboard Information on the most profitable financial planning firms showed that these firms had 110 per cent higher net profits than other industry counterparts. Dashboard found that 85 per cent of these businesses were managed by a platform, while 35 per cent employed practice managers.

Most revealing is the fact that the owners of these successful practices spent less than half the time spent by other firms on financial planning, highlighting the importance of paraplanners in freeing up financial planners to spend more time on what they are both qualified and good at — face-to-face client contact.

Clarke says for too long planners have felt that because they were the ones who saw the client, it was easier for them to put the plan together themselves. However, she says working in conjunction with a paraplanner can prove more beneficial for the overall direction of the business.

Clarke says apart from using a platform provider, outsourcing administration to paraplanners is one of the main ways planning practices learn to outsource some of their non-core functions.

It is important to recognise that the outsourcing experience for planning businesses aligned with dealer groups is very different to that of IFAs, which view independence as a key issue.

In the case of financial planning groups aligned to dealer groups, many of the outsourcing functions can be provided by that dealer group.

An example of this situation is Hillross. Richard Navakas, a Canberra-based financial planner with Hillross, says the dealer group satisfies all of the planning firm’s compliance, research, recommended product lists needs, as well as most of its marketing and branding requirements.

“We just think they do it better. You try and outsource as much as possible where it is done well and not where it is not done well,” he says.

Navakas says the dealer group connection is particularly useful as an interim measure while the business sources extra staff or as a good overflow measure when the business is very busy.

Currently, Navakas’ practice is using the paraplanning services of the dealer group in Sydney while it searches for an in-house full-time paraplanner. Navakas says he does not regard this as a permanent solution because it is “nice to have someone onsite” and e-mailing back and forth to the Sydney office can be annoying.

One area Navakas’ planning business is currently outsourcing is the marketing of the business. He says while it does cost more than the service offered by the dealer group, a personalised marketing approach can be more beneficial than a generic service that is not helping the brand.

The business also outsources its platform solution to the dealer group, but Navakas says if it does not satisfy a client’s needs, then another platform provider would be sought. He says this has been the case in the past with clients who have salary packaging.

For IFAs the outsourcing decision is ultimately their own, and this is where partnerships and strategic alliances can assist them in making the best decisions.

Clarke says while the issue of independence is very important to IFA business models, these groups are increasingly asking themselves if they can continue operating as they have done in the past to remain competitive in the future.