The Considerations and Trade-Offs of Outsourcing Investment Management

Evaluating the Right Option for Your Firm

Recent studies have shown that outsourcing investment management responsibilities benefits both advisors and clients in a major way. From delivering better investment solutions to experiencing a better work/life balance, outsourcing can provide critical support to growing firms — while ensuring all investment-related responsibilities are handled with the care of professional, experienced, and capable hands.

But outsourcing isn’t right for everyone. To help you decide if outsourcing makes sense for your firm and clients, we’ve outlined some key benefits and takeaways that could impact your decision. Also check out part one of this series {LINK}, Exploring the Benefits and Industry Trends of Outsourcing Investment Management, for insights on outsourcing growth and key questions to consider before deciding to outsource.

Consider the Benefits of Outsourcing

It’s always wise to weigh the benefits, as well as the trade-offs, of outsourcing before making your final decision. Let’s take a closer look at some benefits:

More time back in your schedule

The more responsibilities you’re able to confidently take off your plate, the more time you have to dedicate to your prospects and client service. These types of tasks are of high value, as they help you deliver a client experience that showcases your knowledge as an advisor and improves your acquisition and retention efforts.

Operational efficiencies

Hiring dedicated team members to support your back office needs can be expensive and time-consuming — which again, pulls focus from front-facing tasks that clients may perceive to be most valuable and important. Managing the staff, dealing with system upgrades and failures, and handling the other headaches that come along with running a back office take valuable time out of each day. Firms that outsource don’t need back-office systems and don’t expend their valuable resources on them.

More focus on your areas of strength

If your firm has a special strength in certain areas, it may make sense to outsource other aspects of investment management that don’t require your particular expertise. Or, some firms opt to focus more of their internal resources on managing their largest, most complex accounts. In that case, they would selectively outsource investment management responsibilities to complement their areas of focus.

Keep the Trade-Offs in Mind

As with any business decision, you’ll want to consider the potential trade-offs as well. These include:

Costs

The cost of outsourcing will vary greatly between outsourcing providers. With any outsourcing partner you’re considering, ask questions about their fees including:

• Manager’s fee
• Transaction costs
• Expenses for ancillary services

Compare the final cost of doing business with an outsourcer to the savings you’ll achieve by doing so. This will help you better understand if there is (or isn’t) a true benefit to your firm and clients.

Control

Outsourcing does mean you’ll lose some control over portfolio management, though you can still address certain customization requests on an individual basis. Just keep in mind that most outsourcers limit how much customization they can do, and it may be based on factors like minimum account size and householding rules.

Fit

When working with a new potential partner, whether it’s an outsourcer or other third-party provider, make sure they’re a good fit for your firm and clients. Learn about their target market, their average account size, and their per-advisor AUM targets. Be sure the provider will value the relationship — in other words, they won’t view you as a tag-along.

Is Outsourcing a Good Option for Your Firm?

Every advisor has their unique goals and factors to consider when deciding to outsource investment management responsibilities. Reflect honestly on your personal objectives and skillset, and you should find it easier to make a decision that best aligns with your firm goals and client needs.

Want more insights on the considerations and trade-offs of outsourcing your investment management functions? Download 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.

The information contained herein does not constitute investment advice or a solicitation. This article is for dissemination of general information only. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Investments are not guaranteed and are subject to investment risk, including possible loss of the principal amount invested. Past performance is no guarantee of future results.