For many small firms the principle of outsourcing some of their key business practices has often been seen as impractical and possibly even dangerous. Impractical, because generally outsourcing is seen as relevant only to companies of a certain size, who have a budget to match. Dangerous, because for some Principals ‘letting go’ of some of the key processes, and therefore control, would threaten the way they have traditionally run their business. For larger firms many of them may be outsourcing already, and may have considered large scale outsourcing across the company as a whole.
The market has driven significant changes and continues to do so, with the Retail Distribution Review bringing the outsourcing debate to the fore once again.
For some time much of the Independent advice sector has outsourced its risk management to third party firms like Sesame/Bankhall/Tenet and Threesixty services. These third parties have offered compliance and regulation support which has kept many practices in business in spite of the environment of constant change in the UK market, with the Retail Distribution Review being the best and most recent example.
As these new players grew so did the areas for which they could offer support, including suitability letters, marketing support, customer facing magazines as well as providing discounts on CRM systems and other analysis tools. They have even served as a negotiator on behalf of the IFA for commission deals when required. Many of these ingredients were in themselves an outsourced action, made on behalf of the typical advisory practice.
Therefore many small and large IFAs were actually outsourcing extensively and it was quickly (often via a third party) becoming the norm. So the reality for many firms is that outsourcing has crept up upon them in-line with the new services being made available from third parties.
The wide range of services on offer to the market is now so extensive that the reality is that for any firm to remain competitive, large or small, the need to outsource some of what they do is now overwhelming. As mentioned before in previous Retail Distribution Review blogs, the adviser practice must know what each activity actually costs in order to accurately price fees to the end customer. Outsourcing allows the adviser firm to clearly understand what these parts of the process cost.
So where does the level of outsourcing actually stop? If you look at the advice and support process most of it is already available to be outsourced via a third party somewhere, including:
- Lead purchase
- Qualified lead
- Administration
- Para-planning
- Compliance risk – via networks, support services or on an ad hoc basis
- Commission
- Product selection (panels)
- Fund selection (Model Portfolios)
- Remote telephone underwriting
- Remote sales via the website, including quotes and new business
- Training – systems and compliance
- Customer updating information remotely
- Marketing including direct mail activities
- Segmentation – selling on of customers
- Staff
- Office Space and utilities
- Telephone re-direct
- Tele-underwriting
A few years ago I remember reading an article which foretold the advent of advisers meeting customers and working when necessary from home or temporary office space. They’d use a centralised online CRM system and buy in leads or marketing support, as well as remote admin and paraplanning resource by the hour. The compliance/risk support would also be bought in, meaning that the majority of the sales process would be supported by the outsource model. The building blocks are now in place for this to happen.
The Retail Distribution Review will open up the opportunity for new and innovative business models to be created that could offer services to customers in many different ways, including Direct to Consumer on the web or a combination of web and remote advice/guidance. Delivering a costed service based on an outsourced advice support model is the just one of the ways we will see businesses start to re-model themselves.
Martin McKenna - 16
th July 2010