It's been a hard day's night for Australian financial advice practices, working like dogs to balance operational efficiency with regulatory compliance. Just as the Beatles sang about needing something to make the struggle worthwhile, practices are discovering that their outsourcing solutions, while delivering much-needed relief, are now attracting unwanted regulatory attention that threatens to complicate their carefully constructed business models.
The New Reality of Practice Operations
Early analysis from the 2025 Australian Financial Advice Landscape Report, ahead of its release, reveals a profession in transition. With advisers now serving an average of 98 recurring clients—up from previous years—practices are fundamentally rethinking their staffing models. The data shows an 8% reduction in administrative support roles and a 9% reduction in paraplanning resources, driven primarily by the widespread adoption of outsourcing and offshoring arrangements.
This shift represents more than just cost optimisation. It reflects a strategic evolution where practices reimagine which functions require in-house expertise versus those that can be effectively managed through external partnerships. The trend is particularly pronounced in investment management, where 57% of practices now maintain formal investment philosophies (up from 49% in 2024) while reducing internal research capabilities.
These trends show that the old model of having everything in-house is becoming economically unsustainable for most practices. Therefore, the question that practices must ask themselves has become less about whether to outsource, but how to do it safely and effectively while maintaining client service standards.
ASIC's Regulatory Spotlight
ASIC's 2024-25 corporate plan specifically targets offshore outsourcing arrangements, focusing on how investment managers and financial advisers manage technology risks, data sharing protocols, and privacy protections. The regulator's intention to "review how they manage risks related to technology, data sharing and privacy" and publish guidance resources signals a significant regulatory shift.
This focus comes at a time when 74% of practices outsource their IT infrastructure management, creating a substantial population of businesses potentially affected by enhanced regulatory scrutiny. The regulator's emphasis on "the security of client data when sending it offshore" suggests that current practices may face increased compliance requirements and documentation standards.
The regulatory attention isn't coincidental. As practices increasingly rely on offshore providers for critical functions—from paraplanning to data processing—the potential for regulatory breaches, data security incidents, and client privacy violations multiplies. ASIC's proactive approach suggests recognition that traditional oversight mechanisms may be insufficient for the current operating environment.
The Strategic Outsourcing Evolution
The data reveals sophisticated thinking about which functions to outsource versus retain internally. While administrative and basic paraplanning functions move offshore, practices invest in in-house relationship management capabilities simultaneously. This strategic differentiation reflects an understanding that client-facing roles require local expertise and cultural alignment, while back-office functions can leverage global talent pools.
Investment management represents a fascinating case study. 56% of practices now use third-party expert researchers and investment consultants (up from 46% in 2024), demonstrating recognition that investment expertise requires specialisation, and many practices cannot economically maintain it internally. The concurrent growth in investment committees (26%, up from 24%) suggests practices are building governance structures to oversee these external relationships effectively.
This evolution toward hybrid models—combining strategic outsourcing with targeted internal capabilities—seems to drive improved practice economics. However, it also creates new risk profiles that traditional compliance frameworks may not adequately address.
Risk Management in the New Environment
ASIC's focus on offshore arrangements highlights several critical risk areas that practices must address:
Data Security and Privacy: Transferring client information to offshore providers creates multiple vulnerability points. Practices must ensure that data encryption, access controls, and privacy protections meet Australian standards throughout the service delivery chain. This includes understanding the legal and regulatory environment in the offshore jurisdiction and how it might impact client data protection.
Operational Risk: Relying on offshore providers introduces dependencies that practices may struggle to monitor effectively. Time zone differences, communication barriers, and varying service standards can create operational disruptions such as delayed responses to client queries or miscommunication of client instructions, directly impacting client service. The COVID-19 pandemic demonstrated how global events can disrupt offshore operations, highlighting the need for robust contingency planning.
Quality Control: As practices reduce internal oversight capabilities, ensuring consistent quality from offshore providers becomes increasingly challenging. The 9% reduction in paraplanning resources suggests many practices are operating with minimal internal review capabilities, potentially creating quality assurance gaps.
Regulatory Compliance: Perhaps most critically, practices remain fully responsible for compliance with Australian regulations, regardless of where services are delivered. This creates a complex challenge where practices must ensure offshore providers understand and comply with Australian requirements while potentially operating under different regulatory frameworks. For example, a practice outsourcing to a provider in a country with less stringent data protection laws must ensure the provider adheres to higher Australian standards.
Building Compliant Outsourcing Frameworks
Leading practices are developing comprehensive frameworks to manage these risks while capturing the benefits of outsourcing. Key elements include:
Due Diligence Protocols: Robust vendor selection processes that evaluate not just cost and capability, but also data security practices, regulatory compliance understanding, and operational resilience. This includes regular auditing of offshore providers and maintaining documented oversight procedures.
Data Governance: Clear protocols for what client information can be shared offshore, how it must be protected during transmission and storage, and requirements for data destruction. Many practices implement data minimisation strategies, sharing only essential information required for specific tasks.
Quality Assurance Systems: Structured review processes that maintain service quality despite reduced internal oversight. This often involves sampling-based review systems and clear performance metrics for offshore providers.
Contractual Protections: Comprehensive service agreements that clearly define Australian regulatory compliance requirements, data protection obligations, and service level expectations. These contracts must address jurisdictional issues and provide clear remedies for non-compliance.
The Investment Management Shift
The trend toward outsourced investment expertise deserves particular attention. With only 13% of practices maintaining internal research teams (down from 15% in 2024), the profession is experiencing a fundamental shift in how investment decisions are made and documented.
This evolution aligns with the growth in separately managed accounts (SMAs) and model portfolios, where external investment expertise can be efficiently packaged and delivered to multiple practices. However, it also creates new dependencies and potential conflicts of interest that practices must carefully manage.
The concurrent growth in formal investment philosophies and investment committees suggests practices recognise the need for governance structures to oversee these external relationships. However, the effectiveness of these governance mechanisms will likely come under increased regulatory scrutiny as ASIC focuses on offshore arrangements.
Practical Implications for Practices
For practices currently using or considering offshore arrangements, ASIC's focus creates several immediate imperatives:
Documentation Review: Practices should comprehensively review their current outsourcing arrangements, ensuring all data sharing, quality control, and compliance monitoring procedures are adequately documented and regularly updated.
Risk Assessment: A thorough evaluation of the risks associated with each offshore arrangement, including data security, operational continuity, and regulatory compliance risks. This assessment should inform both contract negotiations and internal oversight procedures.
Contingency Planning: Development of alternative service delivery mechanisms that can be activated if offshore arrangements are disrupted or prove non-compliant with evolving regulatory requirements.
Staff Development: Investment in internal capabilities that effectively oversee offshore arrangements. This might include training existing staff in vendor management or hiring specialists with experience in managing global service delivery.
Looking Forward
The outsourcing evolution in financial advice appears irreversible, driven by economic realities and client service demands that make traditional in-house models increasingly difficult to sustain. However, ASIC's focus suggests that practices that fail to manage the risks associated with these arrangements properly may face significant regulatory consequences.
The most successful practices will be those that can capture the efficiency benefits of outsourcing while building robust risk management frameworks that satisfy regulatory requirements. This requires sophisticated thinking about which functions can be safely outsourced, how to maintain effective oversight, and what internal capabilities must be preserved.
As the regulatory environment evolves, practices that have invested in proper due diligence, documentation, and governance procedures will be better positioned to continue benefiting from global service delivery models. Those who have treated outsourcing as simply a cost reduction exercise may face significant challenges as compliance requirements intensify.
The message is clear: outsourcing and offshoring can be valuable tools for practice efficiency and growth, but only when implemented with proper attention to risk management and regulatory compliance. ASIC's focus ensures that practices can no longer treat these arrangements as purely operational decisions—they are now strategic choices with significant regulatory implications that require careful planning and ongoing oversight.
Article by:
Comments0