The pros and cons of outsourced paraplanning

For some firms, outsourcing paraplanning can have its advantages. But how will this impact on the financial planning process and client experience? 

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Paraplanners, who work alongside financial planners, carrying out the administrative aspects of the process of advising clients, are becoming increasingly important to the financial planning process. Each year’s Finance Bill brings new measures to deal with, from pension freedoms and new individual savings account products to changes in inheritance and dividend taxation. Add in compliance requirements and, of course, the need to keep the business growing, and advisers’ time can become increasingly stretched. A good paraplanner with complementary skills can help with the workload, but is it better to use an in-house paraplanner or to outsource to one of the independent firms that offer the service?

Currently, only around 15% of paraplanning work is outsourced, according to Kim Bendall, director of The Paraplanners, which was the first paraplanning outsourcing company in the UK when it was set up in 2008. She says there are pros and cons to both in-house and external services.

“In-house paraplanners give the business owners greater control over their time, processes and costs,” she says. “However, paraplanners are becoming increasingly more expensive to employ and retain due to the demand for them outstripping the supply. A lot of paraplanners are also ‘exam hungry’, so the cost of their training and study leave, as well as the normal associated costs of employing them, incentivising them to stay with you, sick leave, holidays, and so on will see the costs gradually increasing for small business owners.”

The cost of outsourcing this work can be relatively expensive, depending on the extent and type. However, according to Bendall, the advantage is that you don’t have to pay for training, resources, or time off. 

“The downside is that they are effectively a sub-contractor, so you have less control over their time and processes and they usually do not physically work with you in the office,” she explains. “Also, at the moment, there is a severe lack of outsourcers to meet the demand in the market, so many of us are at full capacity a lot of the time.”
A helping handDennis Hall, CEO of Yellowtail Financial Planning, has used both. He believes that outsourcing can be beneficial for small companies who cannot afford the expense of employing someone full-time, or who worry about their ability to manage the extra resource. It can also be used as an interim measure – for example, in a firm where the paraplanner is fully stretched but the workload does not yet justify adding an extra member to the team.

“It is more than the salary, there is also a time cost of having someone in the office. And, even if you already have one or two employed, you may not be able to afford a third. Occasionally the flow of work will mean that you need to try outsourcing,” he added.
"If more people understood how interesting paraplanning is, starting with a mathematical or psychological turn of mind, and fitting all those skills into the advice process, more people would want to do it"
The decision on which to use could also depend on the nature of the work required. Adam Piplica, a paraplanner with PenLife Associates in York, says outsourced companies are used mainly for producing suitability reports – a document required by regulators to explain clearly to clients what you are recommending and how that meets their financial goals. Such reports are ideally suited to contracting out, freeing the adviser for advising and other client-focused activities. His own work is broader, encompassing areas like investment fund research, tax calculations, assessing existing pensions and the merits of switching, deciding where to take withdrawals from and cashflow modelling.  “I work with a number of advisers on different problems each day, so it helps to be in the same office,” he said.

Some paraplanners will attend client meetings; others will be briefed by the adviser. Good communication between the two is, therefore, essential. Apart from the obvious advantage of having face-to-face conversations with advisers, an in-house employee will also be familiar with the company’s writing and communication style – something Hall says was hard to achieve when he outsourced.
Fully briefed Hall says that briefing of external companies has to be “incredibly tight”. He adds: “I found that the work was done to an acceptable standard; it just was not good enough for us. It was technically correct but our style is to be clear and understandable – for example, we sign up to the Clear English campaign. “Getting someone to understand that they should use a particular wording is time-consuming. You have to invest the time to foster that understanding.” 

Outsourcing firms do invest substantial amounts of time in training to equip their paraplanners for different clients. Bendall said: “Just as you would find with an in-house paraplanner, it takes a while to bed in and get to know a new client on the outsourcing side.” She explains that it is essential for any independent financial advice firm to have a centralised process. “If you had 50 major clients and had to adopt 50 completely different ways of working for each of them, it would be a logistic headache and not in any way efficient or easy for a new team member in our company to get to grips with,” she says.

In-house employees are likely to score well on flexibility. An external company will generally deal with assignments as they are received and complete them according to a specific timetable, with urgent requests possible, but likely to be more expensive for the client. According to Hall, a typical plan would take between three and four weeks, which would require research, report writing, and overall scheduling. “Urgent cases could be turned around sooner, depending on what they were and what was involved. This would typically be one to two weeks,” he adds. 

On the other hand, a staff paraplanner can be asked to drop routine tasks and concentrate on more urgent work if required. If they are suitably qualified to give advice – and a growing number are – they can also take on other duties if needed. That, says Hall, can be a big advantage in dealing with clients.

“I have chosen to authorise my support [team] so that, if I am not in the office, they can deal with the client. Ultimately, they have put the plan together and will know what is involved. Sometimes I will come back from a client saying he wants to do a particular thing and my paraplanner will say ‘have you thought of this and this?’ That is not so easy to achieve with an outsourced service.”
“Just as you would find with an in-house paraplanner, it takes a while to bed in and get to know a new client on the outsourcing side” Bendall says that an in-house resource is needed to complement the tasks an outsourced company can do. For example, she cites the time many life and investment companies can take to calculate a fund’s value. While financial planners may be able to speed that up by talking to their business development contacts, third party companies cannot do that as they work across companies and geographies so do not have the personal contacts.
Close relationshipsPiplica agrees that there is a symbiotic relationship. “The adviser typically directs the paraplanner with what they believe needs to be done, but the paraplanner is expected to think independently and offer other ideas and solutions back to the adviser. For this reason, many financial planning firms expect their paraplanners to be qualified to the same minimum standards as advisers.

“In smaller firms the adviser might do their own paraplanning, but generally when it comes to financial planning it’s not a choice between using one or another, it’s a collaborative effort.”

Before becoming a paraplanner, Piplica worked in quantitative market research and wrote articles about his own experiences of investment. However, when his readers began asking him for financial advice, he could only tell them his own experiences because he was not qualified. “This made me want to pursue financial qualifications to one day be capable of giving financial advice to a broader and more diverse base than me. Now I’m in paraplanning I can see many parallels to my market research days. I’m still looking for the story in the numbers. But I’m much more fulfilled working in financial planning because those numbers represent real people’s financial lives, there in black and white.”
Raising the profileAccording to Patrick Ingram, Head of Corporate Relationships at Parmenion, people will generally choose outsourcing because they don’t have the resources or cover to do the work in-house. However, he adds that this is a reflection of the small number of people who work in this role and lack of awareness of it within the industry, so finding a good paraplanner can be difficult. “It’s not that there’s not enough talent, it’s that the role doesn’t have the profile it deserves. If more people understood how interesting paraplanning is, starting with a mathematical or psychological turn of mind, and fitting all those skills into the advice process, more people would want to do it,” he says. “Not knowing about it is a barrier. If you realise you can use some of these skills, and you haven’t got time to train anyone up, you would outsource.”

To help raise the profile of paraplanning, Parmenion sponsors the CISI’s Paraplanner of the Year Award. This year’s winner is Jenny Ryan, a paraplanner at Baigrie Davies, who says that some may choose paraplanning as a stepping-stone to becoming an adviser. “I don’t think they’re two exclusive routes and that you have to choose one or the other necessarily. I think people who are very detail-orientated are potentially more suited to being a paraplanner than an adviser. Advisers will generally leave you to do the nitty gritty stuff, so you have to be prepared to do that if you want to be a paraplanner.”
Best fitThe decision on whether to use an in-house or external paraplanner will ultimately depend on the company’s needs and circumstances. What is certain, however, is that the need to use paraplanning as part of the financial planning process is growing rapidly. “Everyone should use [a paraplanner],” says Hall. “If they don’t, the business can’t grow. No one is an expert in everything – using paraplanners allows everyone in the business to do what they do best. Advisers are not necessarily best at research and pulling all their ideas together, while paraplanners are not necessarily best at client focused areas.”

Some in the industry say that there should be a common standard developed for paraplanning to help clarify what the role is, measuring professionalism, expertise and knowledge. Ryan says such a standard would “cement the value of a paraplanner”. She adds, “Because it can be so varied – what different paraplanners do depending on what company they work for – sometimes I feel that devalues [the profession] in the eyes of advisers. So if there was some sort of minimum standard that you have to attain, it could be viewed more as a profession in and of itself.”

While some argue that there’s no need for a common standard, with other professional qualifications covering the role, others think it would provide much needed clarity and allow firms to see whether they can continue to outsource it or if they should hire a full-time paraplanner. 

Regardless of whether a common standard is brought in, paraplanning will continue to evolve as a role. Ultimately what is most important is not whether paraplanning is done in-house or outsourced, but that the client is getting the best possible service. 
 
Published: 21 Oct 2016
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  • Financial Planning
  • The Review
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