More face time – outsourcing your way to better returns and a superior client experience

04 Apr 2023

From AdviserVoice - this Best Practice article is proudly brought to you by Bennelong Funds Management

Advisers are building deeper, more sustainable relationships and delivering better outcomes for their clients.

What are clients really seeking from their adviser?

The value of financial advice is one of the most discussed, debated, and researched topics within financial services.

Poor consumer understanding of the value of financial advice often translates into a lack of willingness to pay for it, resulting in a community uptake that has remained stubbornly low, in turn putting individuals at heightened risk of poor decision-making in an increasingly challenging and complex economy.

Rising costs and falling adviser numbers will only serve to put advice even further out of reach for many Australians.

As Australians deal with rising interest rates, a cost-of-living crisis and volatile investment markets, the need for expert help in navigating the financial landscape has never been greater, and successfully communicating the value of financial advice has never been more important.

But is the consumer concept of value in advice aligned with that of advisers?

Or is it possible that those advisers who build their proposition around being investment experts are not only misreading what consumers want, but are setting themselves an impossibly high bar to get over? Can advisers do more for the performance of their clients’ portfolios by being more of a coach/mentor and less of a stock picker?

In this article, we will explore the concept of value in advice, examining the latest research on what clients value in advice, and how the adviser value proposition is evolving to be less investment centric and more focused on spending quality time with clients. And how, as a result, advisers are building deeper, more sustainable relationships and delivering better outcomes for their clients.

What clients value most about advice

The value clients derive from advice may not be what advisers expect, with various studies revealing that the functional outcomes of advice (lower tax bills, higher investment performance) were less important than relationship and emotional outcomes.

An ASIC study^[1] of consumer perceptions of the benefits of advice found empowerment, overcoming anxiety and helping transitions to new life stages were commonly cited, along with improved financial knowledge, providing a reality check and establishing goals.

Similarly, research by CoreData^[2] found the five attributes of an adviser relationship most valued by clients were:

understanding me, my circumstances and my needs
trust
ease of communication
transparency, and
competence in managing complex financial issues.

In the strongest client/adviser relationships, the adviser isn’t just playing the role of financial coach, they are providing all-round emotional support for clients navigating the ups and downs of life (many of which have financial implications).

This was reinforced by an XY Adviser Survey^[3] which found that on average, Australian advisers spend 45% of their time with their clients talking about non-financial personal issues. That same survey also found these personal, non-financial conversations were having a positive impact on clients, with:

almost half of advisers (47%) agreeing there was more effective communication between husband and wife, parents and children, or others who may be significant in the client’s lives, and
47% feeling their client was living a life closer to their core values, and enjoying what is most important to them.

The advisers surveyed reported a positive business outcome as well, with 52% saying their ability to do a good job at financial planning was enhanced or improved, and 39% agreeing their business had increased as a result. (Unsurprisingly then, 94% of advisers surveyed said their role as coach and counsellor was increasing in importance).

Building relationships means more client ‘face time’

It is clear, if not obvious, that an adviser’s time creates the most value when it is spent building and maintaining trusted relationships. These relationships may be with clients and/or prospective clients and in-person or virtual.

There is no universally agreed upon benchmark as to what percentage of an advisor’s time should be face time, although some industry observers believe it should be as high as 80%.

Australian research by Virtual Business Partners^[4] showed a positive correlation between adviser face time and income, with the highest-paid advisers spending over half their time in client meetings, and around a third on business development (and just 4% on investment management).

The challenge in spending more face time with clients

While upping client face time is clearly in the interest of both the client and the adviser, it is easier said than done.

Advisers have many demands on their time. As well as staying on top of product changes, tax laws, Centrelink rules, superannuation regulations, and of course increasingly challenging investment markets, they also have to devote time to:

professional development
compliance, and
general administration.

And, if they are a practice principal as well as an adviser, those demands will also include:

managing staff
marketing and client communication
technology, and
general management of the business, including profitability, proposition development, and process design.

An impossible balance to achieve?

Advisers need to balance the need to spend more time building client relationships with the often competing needs to drive down costs, maintain and build their technical knowledge, stay abreast of market developments, remain compliant, and continue to deliver high-quality investment advice and outcomes.

Whilst at first glance this may seem an impossible balance to achieve, it is actually one being successfully achieved every day by Australian advisers, through the power of outsourcing.

Outsourcing by advice practices

Outsourcing has been used by successful advice practices for many years.

Examples range from automation, through to ‘internal outsourcing’, where practice management functions are allocated away from advisers, to outsourcing to external third parties.

Adviser Ratings data shows the growing popularity of external outsourcing, with the average practice now having the equivalent of one outsourced staff member for every six internal team members^[5].

Functions commonly outsourced to third parties include specialised capabilities such as:

paraplanning
compliance
technology management
client administration, and
marketing.

Offshoring some of these functions is common.

The main economic benefits of external outsourcing are derived from:

freeing up the adviser to spend more time building and maintaining client relationships
realising cost savings by tapping into scale benefits offered by larger external providers
outsourced functions being performed to a higher standard, leading to better client outcomes and greater client satisfaction
lower error rates and less rework.

Paraplanning

Paraplanning is highly time intensive, and hence outsourcing this function, either to a specialist within the practice or to a third-party external provider, is one of the most obvious ways to create more client-facing capacity.

Some estimates suggest the average SOA takes 10 hours to produce, meaning every single outsourced SOA frees up the equivalent of 2 hours every day.

Irrespective of whether you outsource in-house, or go fully external, the cost saving can also be significant too, with the paraplanner salaries typically lower than the cost of advisers. Some offshore providers of paraplanning are able to offer a further cost saving, in some cases around 30% lower than the cost of an Australian-based paraplanner^[6], creating even higher savings potential (although managing offshore service providers may be more time intensive, thus eroding some of the benefits).

Externally outsourcing paraplanning also introduces more flexibility in your resourcing, making it easier to scale up in times of high demand, without the risk of having an under-utilised resource during quiet periods.

Outsourcing administration and specialised tasks

Other functions that are ripe for outsourcing include:

those requiring highly specialised expertise beyond the capabilities of small practices (such as marketing, social media, design, and technology), and
non-client-facing, high-frequency, low-value, repetitive tasks such as application forms, bookkeeping, and preparing client paperwork.

The benefits of outsourcing administrative tasks can be especially significant for smaller practices, and this adviser perspective is fairly typical:

“We realised early on that we can’t do it all, so we outsourced. Using an outsourced admin service to supplement our Australian staff has saved us so we can spend time on more technical work. Using a virtual assistant for social media builds our presence and is now a reliable source of referrals for us.”^[7]

Outsourcing of investment capabilities

The potential benefits of outsourcing are equally applicable in a field as complex and dynamic as investment management, although adviser willingness to outsource investment management has historically been lower compared to other business functions, for a number of reasons, including perceptions around the loss of control, cost, and the idea that investment management is their ‘secret sauce’.

But investing is highly regulated, highly complex and expensive. It is also challenging to do well and is becoming increasingly treacherous. As the complexity, cost and challenges of investing continue to grow, research suggests adviser reluctance to outsource investment expertise is declining. In the US for example, the proportion of registered investment advisors outsourcing investment management grew from just over one quarter (27%) in 2020 to just under one-third (32%) in 2022⁸.

At the same time, those who do outsource reported extraordinarily high satisfaction levels:

98% of outsourcing advisors said it allows them to deliver better investment solutions to their clients, and
91% said their growth of assets under management had accelerated since outsourcing⁹.

In Australia, this trend underpins the popularity of model portfolios and managed accounts, which allow advisers to outsource the detailed construction and day-to-day management of client portfolios.

a decade ago, 16% of Australian advisers were using managed accounts with their clients^[10]
this had grown to 44% of advisers by 2020 and 53% by 2021^[11]
advisers are now recommending them to 60% of their clients, seeing funds in managed accounts grow by 22% over the 21/22 financial year, to $135 billion.^[12]

Managed discretionary accounts have proved especially popular, with the outsourcing of the discretion to make portfolio changes underpinning a significant efficiency and compliance benefit, as an individual SOA or ROA is not required every time a transaction takes place on the portfolio.

Recent research by Investment Trends^[13] suggests the use of managed accounts was giving advisors 15.7 hours, or two days, back every week, in reduced client administration, compliance and communication.

In the words of one adviser:

“We’ve been using managed accounts now for nearly five years and it’s been a game changer for us in terms of efficiency, transparency, client education and most importantly, the outcome for the clients have improved. This freeing up of time and resources has enabled us to form deeper connections with our clients by focusing on what is really important to them.”^[14]

The other reason not to tie your own value-add to investment performance

When markets tank, and performance is volatile over an extended period of time (i.e., the conditions we face now), any negative or below-expectation investment performance will reflect directly on you and the value of the expertise clients are paying you for (even though the circumstances are out of your control). This does not make for positive, sustainable relationships, or career satisfaction!

A superior client experience

If advisers are saving time – and possibly costs – by outsourcing, it is important to invest those savings where they will deliver the most benefit, and happily, this appears to be the case. For example, Australian research has found 68% of managed account users say they now have more time to focus on helping clients with their goals^[15].

In addition to spending more time helping clients with specific decisions at any given time, advisers can also invest more time in educating clients (individually and as a group), and improving their understanding of the financial principles and practicalities of growing wealth. This can be especially valuable in intergenerational wealth transfer scenarios, where many clients value the opportunity to impart knowledge and a sense of financial responsibility onto their children, helping set them up for a more secure future.

Another key reason to build a proposition around spending more time with clients is that it can deliver better outcomes, including improved investment performance.

Helping clients manage their behavioural biases and stay on track during periods of stress is especially valuable, and indeed a number of studies^[16] have concluded that behavioural coaching can add 1-2% net annual return to a client, around twice that attributed to asset allocation, and 6 times that from portfolio rebalancing.

Conclusion

Clients place more value on the emotional and relationship benefits of advice than they do on functional benefits, such as investment performance. Unsurprisingly, research shows that those advisers who spend more face time with clients generate higher revenues.

With so many other demands on their time, the main pathway to creating more client-facing capacity is to outsource onerous business functions. Functions ripe for outsourcing include paraplanning, marketing and client administration. And, despite historical reservations that it was central to their own value proposition, investment management is also increasingly being outsourced, especially through the use of managed accounts.

As a result of outsourcing, advisers are able to spend more time, educating and mentoring their clients and helping them remove emotion from investment decisions at times of high stress. Clients in turn are benefiting from superior service and investment outcomes, reinforcing to them the value of advice.