More and more advisors are choosing to partner with us, using Schroder Investment Solutions, our range of model portfolios and multi-asset funds to meet client needs.
We’re excited about that as a company, but how does it align with broader industry trends?
Our newest UK Financial Adviser Pulse Surveyconducted in May, looks at how the scale of consultant outsourcing is changing and why.
Responses suggest that the shift toward greater use of third-party portfolio management continues across the industry, with 17% of advisors saying they have increased their use of outsourced solutions over the past year.
Many of the factors that influence a consultant’s decision to outsource are interrelated
Looking more closely at the data, it is perhaps more interesting to see an increase in the assets under management that advisors entrust management to third parties. The number of advisors who say they outsource more than half of client assets rose to 31% in May from 21% in November 2021. That’s quite a jump.
What is motivating more and more consultants to move away from the management of customer investments?
Investment expertise wanted
Advisors point out that investment-related factors are paramount when making a decision to outsource portfolio management.
When asked about the factors behind the decision to outsource, concerns about “access to investment expertise and resources” rank first by some distance, followed by “effective volatility management”.
Service is also becoming an important factor in the selection process
“Spending more time with clients” and “Improved operational effectiveness” are also rated as important or very important by more than 60% of consultants. However, “effective volatility management” has replaced “more time with clients” as the second most important factor in advisor decision-making, possibly reflecting the value advisors place on active portfolio management in times of heightened market uncertainty.
In fact, the two go hand-in-hand, as advisors are likely to spend more time with their clients during times of volatility, explaining the causes of market movements and typically encouraging clients to stay invested.
So, our conversations with consultants show that many of the factors influencing an outsourcing decision are interrelated.
When asked about the factors behind the outsourcing decision, concerns about “access to investment know-how and resources” top the list by some distance
Another example is the increasing regulatory burden, e.g. B. Mifid II reports on fees and portfolio write-downs that can be linked to operational effectiveness.
For some advisors, access to investment expertise and resources is closely linked to the need to offer a sustainable solution and to integrate sustainability into their processes. Many are still on the way and therefore feel more comfortable using an investment partner for their sustainability offering to customers.
We strongly believe that while the quality of the investment proposal is extremely important, reporting should ideally go beyond capturing performance and also show the positive impact of the investments.
How would you rate the following when making a decision to outsource portfolio management?
Performance remains the determining factor for most advisors when selecting a best-in-class portfolio service or multi-asset solution, with over 75% rating it a 1 or 2 on a scale of 1 (most important) to 6 (least important). . After that comes the costs and the investment process.
Advisors tell us what’s important here is performance against a benchmark, but also customization to the client’s risk profile and a full range of portfolios to support the range of clients they work with.
It is perhaps more interesting to see an increase in the amount of assets under management that advisors entrust management to third parties
Service is also becoming an important factor in the selection process. For our Schroder Investment Solutions business this involves many factors including regular monthly updates on the markets, the performance of the portfolios and any changes implemented by the investment team.
Question and answer sessions are also important to ensure the advisor is always in the driving seat when it comes to quality client discussions; Investment management is outsourced to a partner, but everyone knows how the portfolios are managed.
Outsourcing seems to be on the rise. But watch our next survey in November to see if this trend continues.
Gillian Hepburn is Head of UK Intermediary Solutions at Schroders
This article was published in the August 2022 issue of MM.
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