Crunch on advisers' time

Regulation is prompting advisers to have to think about what they enjoy doing - and do well - and outsource the rest. But does that put too much pressure on margins?

Friday, October 14th 2016, 6:00AM

by Susan Edmunds

New research has found investment advisers spend less than 20% of their time making investment decisions. They spend more time dealing with things such as finding new clients, meeting current clients and doing administrative and compliance work.

Barry Read, of adviser compliance firm IDS, said advisers had to find a balance since the advent of regulation. "[The Financial Advisers Act] got everyone to stop and think what it is that they actually do and what they are good at, and what they will do going forward."

He said investment advisers tended to fit into three key moulds. The first was the type who had decided to select a provider of a product or portfolio and stick what what they offered.

The second would use a model portfolio but offer tweaks around that. And another about 20% would have their own investment committee, or do it themselves, and build bespoke portfolios for people.

He said if advisers had chosen to outsource decisions such as asset allocation, they needed to be able to explain how that was done. But that was not always being well recorded, he said.

There was more room for further outsourcing to happen for New Zealand advisers, he said, as roboadvice tools developed and advisers honed their businesses under the new rules.

Some who were good at relationship-building, he said, and could outsource the other functions of the business. Others who enjoyed putting portfolios together might want to work with another adviser as the front person of the organisation.

"It's a matter of doing what you're good at. If you're going to become more efficient you need to outsource the stuff you don't enjoy doing. There will be someone else out there who does enjoy it," he said.

For some, it will require a change of focus.

"Framing their role as relationship-focused could be difficult for many advisers because their value proposition has historically been investment-centric," Emily Sweet, an analyst at analytics firm Cerulli, said. "Our data shows that after tending to important client needs, time available to manage investments is limited. Outsourcing elements of investment management can enhance efficiency."

She said adviser should view model portfolios and other outsourced resources not as a conflict to their value proposition, but as a complement.

Creating a standard starting point for investing client portfolios could help them scale their efforts while allowing room to tailor the end portfolio to suit individual clients' needs.

But Read said some might worry about outsourcing taking a further cut of their margins, which are already coming under some pressure due to the low interest-rate environment.

Tags: financial advisers investment