There are two reasons why company outsources.

Reason 1: The company wish to outsource one of its activity because it felt that it is incompetent to do it well. So it outsource to external specialist.

Reason 2: The company wish to outsource one of its activity because it felt that this activity provides little value for the company. It just outsource to an external vender because it is still a necessary function.

For the first reason, the company outsource to a specialist because the company doesn’t know how to do well. For the second reason, it outsource to a vendor because it does not see much value having such a function in-house.

If you look at this closely, Reason 2 implies that the vendor is merely performing the function out of necessity at the lowest cost. Typically there will be many vendors that are able to do it. So the company would go on a bidding contest and award to the cheapest tender. On the other hand, Reason 1 implies that the need to get the best specialist to do the job. Because each specialist is unique, there is no comparison between specialists. So it is not possible to compare prices of these specialists.

Since this is a financial blog, I’ll write something about how people “outsource” their financial matters to others.

I believe most people would go along with Reason 2 when they outsource. They would open an online account to invest in say unit trusts, they are outsourcing already. If they open a brokerage account, they are also outsourcing. They are actually outsourcing to a computer. It is also common for people to buy some insurance products from an agent. Some agents called the IFA are even more high class and could even quote 10 policies at one go. But these agents are merely vendors. To think about it, fund managers who had studied hard to get their Masters and PhDs have also being reduced to unit trusts. For just $1000, you can invest in a professionally managed fund. To make matter worst, some joker called Wilfred Ling says that unit trusts are not good because a computer that simply mirror after the index can do better 2/3 of the time at almost no cost. So it seems, fund managers have been reduced to nothing as well. I call all these “vendors” as commodities. Everyone of them – online unit trusts, online stock brokerage house, insurance agents, IFAs, unit trusts, fund managers, index funds - are stuck in the Commodity Trap because they have become commodized. What is the difference between all these commodities? Nothing except their price.

What about Reason 1? Apparently specialists do not get paid. So such specialist will downgrade and become a commodity too. THEREFORE, it is almost impossible for any individuals in Singapore to find a specialized financial planner.