Outsourcing: Risk or opportunity?

Outsourcing client services is often considered a risk, but in the current legislative and market environment, it creates opportunities to enhance the services you offer, provided you select the right partner and structure the agreements correctly.

Clients are the most important aspect of any financial advisor's practice and anything that could threaten client relationships must be seen as a risk to the business. "No wonder the outsourcing of client services to others is seen as controversial, even dangerous," says Esmé Davies, Head of Celestis Practice Management.

"Introducing your client to a third party potentially means having someone else build a relationship with your client when you may not even be present. Yet handled correctly, outsourcing is one means of actually enhancing the services you offer your clients – both in terms of the range and the quality of service delivered."

Knowledge limitations

In the current financial services environment, you need to be an expert to deliver advice on each facet of financial planning. Acquiring and maintaining the knowledge to provide one-stop advisory services is no longer feasible – physically or from a FAIS viewpoint. To offer a holistic range of services, you either need to increase the size of your practice and employ others with appropriate qualifications, or make use of outsourcing. Extending your staff base may not be viable and could add to your management and administration burden. More often than not, outsourcing is the practical, profitable and viable alternative.

Considering the implications

Making outsourcing a viable option in your practice requires careful deliberation. Think in terms of what you could be offering your clients, rather than the additional income potential, because the real benefit to you lies in the entrenchment of long-term client satisfaction.

Start by determining exactly what services you will consider outsourcing and then create a list of possible outsource partners, giving priority to local or regional professionals. Remember that these partners will be seen by your clients as an extension of your services.

Professional approach

Arrange a meeting with your outsource partners and make certain that they can deliver to your expectations. Establish a formal agreement with your partners that defines the terms of engagement, including service standards, fee arrangements and the basis on which the agreement will be reviewed. Many advisors consider a verbal agreement adequate, but experience suggests that where the understanding between parties is reduced to writing, it is more likely that the arrangement will succeed.

Tell your clients about the arrangements you have formulated. Having extended the range of professional services you can offer through outsourcing, you must make your clients aware of the benefits they can derive.

When passing a client over to an outsource partner, it is usually best to make the initial introduction in person. This allows you to demonstrate the mutual respect between you and your partner and initiate the commencement of the client relationship that will grow between the two of them.

Clients' best interests

If you still need to be convinced, imagine a holistic range of financial services and write down the name of the best advisor or consultant you would want to deal with for each service element. If the name you wrote down is not your own then the question is, "why not let your client meet with the person you consider best?".

"Interestingly, we have found that the most successful outsourcing arrangements occur when there is no transfer of fees or commission sharing between the two parties," says Davies. "In those instances, there seems to be a much stronger intent to refer clients to one another."