Over the last ten days I’ve had several conversations with discretionary managers (DFMs), who have described their service as an ‘insourcing’ solution, rather than an outsourced offering. This got me thinking – what is the difference between insourcing and outsourcing and how can an advisory firm select the most appropriate option for their business?


Below you will find my thoughts and ramblings. Feel free to add to the DISCUSsion by commenting in the space below.


Let’s start with a few definitions. Investopedia (one of my favourite resources for defining common terms we use in our profession) says:



Outsourcing is a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally. Outsourcing is an effective cost-saving strategy when used properly.


It is sometimes more affordable to source a service from an external firm, than it is to deliver that service internally (okay, so I slightly amended the last sentence to refer to a service, rather than a product. Particularly because our regulator defines DFM as a service and not a product).



Assigning a project to a person or department within the company instead of hiring an outside person or company to do the work. While outsourcing is commonly thought of as a way for companies to save money, it is sometimes more cost effective to have the work done in-house.


Hmmm. Interesting. When it comes to utilising discretionary investment services I would define insourcing somewhat differently (and I’m sure many of our discretionary manager partners would agree). To me, insourcing is:


Investment insourcing:

Buying in specialist skills or expertise to support the delivery of your centralised investment proposition, while maintaining a certain level of control over that process.


In my mind, the key differentiator is this last piece, maintaining some level of control. This is an area where I’ve seen a lot of advisers struggle. Usually because they have maintained complete control over their investment proposition until inefficiencies led them to re-think their approach.

It might be that as their business has grown they have struggled to deal with the operational issues that can come with managing advisory model portfolios (e.g. seeking client permission for rebalancing or repositioning the portfolios, and the time delays that can ensue). However, while these problems create headaches and they acknowledge things need to change, they are reticent to ‘let go’ of their investment process altogether.


Until very recently I viewed insourcing as buying in research or fund ‘buy lists’, rather than undertaking the associated research in-house (a service provided by our sister company, The Adviser Centre). I also saw model portfolio solutions, where a third-party would establish models for the advice firm, often including commentaries and other client facing content which could be white-labelled, as insourcing.


Now I can add another form of insourcing to this definition – the creation of model portfolios by a discretionary manager, bespoke to a specific advisory firm. In this situation, the discretionary manager will sit on the adviser’s Investment Committee and contribute ideas and expertise to shape their centralised investment proposition.


A further benefit is that the DFM will execute changes to the portfolios using their discretionary powers, rather than leaving this to the adviser to execute on an advisory basis.


These services can be branded in the discretionary manager’s brand, co-branded or delivered on a white-label basis.


Several of our discretionary investment partners are happy to strategically partner with advisers to deliver this form of ‘insourcing’ solution. Indeed, a few of them only operate in this way.


To insource or outsource? Determining the right solution for your business


Determining whether you should insource or outsource is a very personal decision. As every advice business is different, and I don’t know the intricacies of your firm, unfortunately I can’t provide a hard-and-fast answer.


Instead, below are my thoughts – or you might call them ramblings – on how I would tackle the decision.


First and foremost, I would drop the word ‘outsourcing’ from our collective vocabularies. If there is one thing I’ve learnt, particularly since we launched DISCUS last year, it is that a lot of advisers are allergic to the term outsourcing. Why? Because it can give the impression of abdicating responsibility, rather than working collaboratively and devoting time to finding the ‘right’ investment services for your clients.


Factors to consider when insourcing

» Internal resources. I would determine whether I have the internal resources to support an insource relationship. If I’m insourcing model portfolios to execute on an advisory basis, do I have the bandwidth in my team to implement the requisite changes to portfolios as and when required? If I was planning to white-label an insourced proposition, how much of that marketing resource (rebranding documents and the like) would fall to my team?


» Motivation. I would reflect on why I’m drawn towards insourcing. Is it because I have always enjoyed ‘having a hand’ in the investment process? Is it because in the past my client value proposition was tied to my investment proposition? Is white labelling the appeal, so my brand is always front and centre in client communications?

Factors to consider when outsourcing

On the other hand, a few points might draw me towards outsourcing. By outsourcing, I can benefit from:

» Value proposition clarity. Accessing the discretionary manager’s ‘best thinking’ and expertise. I’m not putting my stamp on their investment process. I realise that my skills are in financial planning and there is ‘kudos’ in using a larger, better resourced, sometimes recognisable brand to deliver my investment proposition.


» Re-focusing resources. Focusing my internal resources on higher-value client facing activities, rather than the investment process, can lead to more engaged client relationships.


» Adding a new service. I can create an additional service – and possibly charge for it (gasp!) – which involves researching discretionary managers, conducting due diligence and monitoring those relationships. I can also benefit from sitting on the ‘same side of the table’ as my client.


» Maintaining 100% ownership of my client relationships. This is an important point, which may lead many advisers to consider insourcing – because they want to remain in control of the client relationship. They don’t want to risk a DFM stealing their clients away. Using Unitised DFM or Managed Portfolio Services on a platform, I can benefit from accessing the DFM’s best investment thinking, without the discretionary manager ever having to meet my clients.


The final – and arguably and most important – consideration

One area that is often missed, although incredibly important in ensuring the success of any professional relationship, is evaluating ‘cultural fit’. While it is notoriously difficult to measure and you won’t get a real taste for it until you engage in a relationship, in my view it is the most important element in determining whether the solution you pick, insourcing or outsourcing, is right for your firm.


I’ll leave my ramblings there. DISCUSs.


This article was created for the DISCUS website based on an exploration of investment insourcing vs. outsourcing by Abbie Knight. To find out more about the DISCUS discretionary manager partners click here ›