Outsourcing the financial planner

It is pretty unusual to find a financial planner with nothing to do. It seems these days if a planner does not have towering piles of paper work precariously placed on a desk or legislative manuals plastered with post-it-notes then they are not the genuine article.

However, as the face of financial planning changes, so to does the ways of the craft, with the majority of financial planners making use of outsourcing systems to remove the towering paper piles, giving them more time to spend with their clients.

But does outsourcing also mean a loss of control for the financial planner? And if so, are clients only speaking to front end people, with those who provide the outsourced services doing the hard yards and feeding the results back to advisers.

One of the major areas that planners can outsource is through master trusts and wrap accounts, which remove some of the more onerous paperwork and reporting tasks as well as making investments easier for planner and clients.

Given this, Macquarie Portfolio Services division director Neil Roderick says that outsourcing has not taken away from the planner's role and they do a lot more work that cannot be outsourced.

“The way Macquarie looks at it, yes we do administration for advisers, and that enables them to focus on core competencies, with special administrators concentrating on other things,” he says.

As well as outsourcing administration, Roderick says planners are readily outsourcing other services such as compliance and dealer group software, but he says planners use Macquarie’s service for basic administration services, transaction execution, freeing them up for client contact and services.

It is also Bill Wawn’s view that outsourcing is indeed necessary. Wawn, BT Financial Group head of wrap business, says feedback from advisers using BT products has highlighted that wraps give them more time to spend with their clients, and that advisers have realised there are some areas they should outsource.

Wawn says among the most common outsourcing services planners use is administration, probably because advisers do not see administration as a high priority, but rather, a necessary evil.

He says in the last few years, there has been rapid growth in financial services with more advisers joining in the outsource market.

Wawn believes that many planners don’t have sufficient time to do everything. There are the planners who are aligned with dealer groups and outsource through them, or use outsourcing in addition to a wrap account. And there are other independent financial planners that will look for a wrap account that provides the choice and range of funds to do the research, administration and margin lending they require.

“Investors that we talked to say the adviser is now able to give them a better service, and more time,” he says.

“Three to five years ago planners could be bogged down with application forms, redemption forms, with a lot of the transactions, with any exchange with clients and managers dependent on paper and telephone calls, resulting in a slower process. Now, planners can manage the time to provide additional service,” Wawn adds.

However, well known industry consultant and commentator Tom Collins says that outsourcing is going too far, with planners creating a difficult working environment for themselves, with first time outsourcers jumping headfirst into the unknown.

Collins, managing director of The Tom Collins Consultancy, says with technology an adviser can outsource every function in their office, which is not always a positive move.

He says before planners have an opportunity to decide which outsourcing provider to use and what to outsource, they need to decide what is the value of their business.

Planners also need to decide whether they want fixed or variable overheads, whether they can retain competent staff, and if they have found an outsource provider who won’t let them down.

He says currently planners are outsourcing almost half their business activities and many have already outsourced plan preparation elements and much of their portfolio management.

As a result, with the exclusion of reviews, there isn’t much left for the planner to organise themselves, particularly if they have competent paraplanners.

Collins goes further and says all that remains is collecting information on new clients, completing needs analysis and risk profiling and strategy modelling and management.

“My view is that the adviser can’t outsource the face-to-face elements with a client, but they can look closely at everything else and at one extreme they could end up with the relationship management or could work back from there,” Collins says.

Another issue Collins has with planners outsourcing is that many planners do not research outsourcing groups and just copy other groups with the flavour of the month.

“When advisers pick financial planning software for instance they are then outsourcing, as they are using external software, and many do not sit down and look at the product to ensure it delivers the service they want,” Collins says.

“There is no use having sophisticated software if you do not have competent staff to drive it. Wrap and master trusts are also about outsourcing but in this case it is the area of administration. As such, advisers need to consider if they are picking the provider as the flavour of the month or the one that will bring greater value or suits the business,” he says.

However, Collins’s view is not shared by Roderick, who says outsourcing does change the way planners process their work, and because of these changes, planners do think long and hard about which system to use.

Echoing Roderick’s comments is Jeffrey Wrightson, Macquarie’s Financial Planning Manager in NSW, who says outsourcing has not gone too far. He says, because clients don’t value the administration parts of the planning process, planners who use wraps and master trust services can add value where clients can see value and then pay for it.

Wrightson says what people should be concentrating on is the advancements in outsourcing, not the number of outsourced services and in the future providers should look at expanding the level and type of services available to planners and clients.

“The financial markets are changing with clients becoming more demanding, and investment choice is so much greater,” Wrightson says.

“In the past, clients would ring up financial planners to get a sense of their portfolios. Some of the wraps and the master trusts are online and so they don’t need to make the call to planners. Some of the burden is taken away, but they still need and are given that sense of comfort and security in terms of their investments,” he says.