Finding Scale Through Outsourcing
As your firm grows, you’ll inevitably come to a critical crossroads when you must decide how best to use your limited time — and what you’ll need to remove from your plate.
You’ll want your client experience to remain personalized and high-touch. Plus, it’s important to keep that experience standardized across your book of business. But spending more time on client-facing tasks ultimately means having less time to focus on middle- and back-office functions.
This is a common conundrum for financial advisors and a reason why outsourcing investment management functions has become increasingly popular in recent years. In this first part of our two-part series on the topic, we’ll take a look at how outsourcing has enabled firms to better scale and serve their clients (stay tuned for part two).
Industry Trends
Turnkey asset management providers (TAMPs) are platforms that offer outsourced portfolio management services to advisors. In 2010, approximately $160 billion in assets were managed by TAMPs. Now in 2024, that number has risen over 500% to $843 billion, according to Tiburon Strategic Advisors.
Along the same line, technology TAMP platform providers, which provide portfolio accounting and performance reporting services to financial advisors, administer approximately $20.6 trillion, up from $2.1 trillion in 2010.
But what’s driving this trend — beyond the advisor's need for more time in the day to focus on client engagement and relationship growth?
We’ve identified two important factors pushing more advisors to adopt outsourcing solutions, particularly for their investment management functions:
Client Satisfaction:
While advisors have expressed concerns over how clients would perceive outsourced investment management, studies show that the majority of clients have no preference for how involved an advisor is in those investment-related responsibilities. In fact, a 2014 study by Northern Trust found that 92% of surveyed participants had an overwhelmingly positive response to outsourced investment management.
Regulatory Pressures:
The SEC and state regulators are regularly updating compliance requirements in alignment with a shifting landscape, making it more challenging for advisors to stay current on the latest rules and regulations. As an example, fiduciary responsibilities have expanded to a broader set of advisors, resulting in an increased interest in delegating investment management responsibilities to specialists.
How Outsourcing Benefits Advisors
Outsourcing investment-related responsibilities enables advisors to more effectively achieve their growth goals without sacrificing the client experience (or allowing other important tasks to slip through the cracks). More specifically, it helps advisors realize:
- Improvements in portfolio quality
- Relief from the burdens of account administration
- More time to focus on acquiring and servicing clients
- The ability to “institutionalize” the investment management function
- Elimination of conflicts of interest
- Cost reductions for the firm and/or clients
Plus, many advisors experience the added benefit of better work/life balance without sacrificing client service, firmwide growth goals, or your bottom line.
How Outsourcing Benefits Clients
When you can trust another professional or platform to manage the back-office operations, like investment management, you have more time and energy to devote directly to your clients. As a result, they can enjoy a more personalized experience — and their perceived value of your services increases.
Outsourcing also enables your firm to leverage resources and expertise beyond what may be available in-house. For clients with exceptionally complex portfolios or investment scenarios, having access to these additional tools can be crucial in addressing their needs.
Is Outsourcing Right for You?
To decide if outsourcing investment management tasks is right for you, ask yourself these three questions:
What’s my passion?
Financial advisors tend to fall into two camps here — either they love the technical aspects of the business or they love working with people. Someone passionate about investing may want to keep those responsibilities in-house. But if you’re more interested in other aspects of the job, it might make sense to outsource.
Where do my talents lie?
Consider what you’re best at. If you’re not CFA-level-skilled in investment analysis and management, it may be in your clients' best interests to outsource that function to more experienced or qualified professionals.
What are my goals?
Outsourcing is most effective for those looking to accomplish specific goals, like growing your firm, regaining more of your time, improving operational efficiency, etc. Otherwise, you may not find it worth the short-term disruption of establishing outsourced operations.
Want more insights on the benefits and considerations of outsourcing your investment management functions? Download our new eBook, Should You Outsource Your Investment Management, now for a deeper dive into current outsourcing trends, how to decide if you’re a good candidate, and much more.
