Avoiding the regulatory pitfalls of outsourcing

According to Adviser Ratings, financial advice firms must ensure they think strategically about the use of offshore or third-party operations rather than just consider them as a form of cost-cutting.

Early data from the firm’s 2025 Advice Landscape Report revealed that advice practices are “fundamentally rethinking their staffing models”, with many turning to offshore outsourcing for back-office operations.

In fact, the research noted an 8 per cent reduction in administrative support roles and a 9 per cent drop in paraplanning resources, which the firm explained is primarily a result of the widespread adoption of outsourcing and offshoring arrangements.

While there is a cost-saving element involved here, with traditional all-inclusive in-house models being deemed “economically unsustainable now”, it also reflects a shift in mindset of what practices actually need to do in-house and what can be handed off to external providers.

However, there are some notable challenges that come with outsourcing which, if not properly managed, could land practices in hot water with regulators.

One of the key concerns raised is data security and what risks they could be exposed to if sensitive information is being shared with an offshore partner. 

In particular, the firm noted that other countries may have more relaxed regulations on data protection. A fact that may prove an issue as advice practices and those they work with are held to Australian standards.

One of the key concerns raised in regard to practices reducing their in-house staff is the lack of available review capabilities to ensure that outsourced staff are maintaining proper procedures and regulatory requirements.

“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,” the firm said.

“This requires sophisticated thinking about which functions can be safely outsourced, how to maintain effective oversight, and what internal capabilities must be preserved.”

With the ASIC turning greater focus on offshore outsourcing arrangements, those who choose to go ahead with this model will need to be vigilant in their business procedures.

“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,” Adviser Ratings said.

Even so, the firm suggested that the “outsourcing evolution in financial advice appears to be irreversible” as rising costs and client demands continue to put pressure on the profession to deliver service at a fast and affordable rate.