Why did you become an independent advisor? There are likely several reasons, including a deep desire to help people fulfill their dreams of building a secure and prosperous financial future. The notion of service and personal commitment runs deep in your veins. You get to know your clients like family, creating and executing a proven investment strategy that will help them achieve their goals.
But how deep should your service offering run? As a growing practice, you have to pick and choose how you focus your time since there are only 24 hours in a day, and you can’t magically manufacture more. As an RIA, your primary focus is creating and implementing a holistic financial plan for your clients and then managing and growing their investment portfolios, but you know that you can’t handle every facet of this mission on your own. Plus, your clients are demanding more, not less.
One way to reclaim your time is to outsource your trading function, including order processing, settlement, back-office reporting, and operational workflows. Increased efficiency, the higher costs of staffing demands, and the COVID-19 pandemic have all placed more attention on the benefit of outsourcing more functions like trading.
Trading is at an inflection point
The investment industry itself is at an inflection point when it comes to outsourced trading, thanks to an increased focus on trading as a separate and distinct function outside the realm of core investment management.
Global asset managers are already been making significant moves. According to a 2020 survey of 300 heads of investment operations worldwide by Northern Trust, 17% of asset managers have already outsourced trading, 37% more plan to consider it over the next two years, and another 31% expressed interest in outsourcing, but without a specific action plan.1
Other research has revealed the same industry leaning. According to Sionic and BNP Paribas studies, 20% of institutional investors have outsourced some of their trading operations. Among those not yet outsourcing, 21% will be actively considering an outsourcing option within the next two years.2
These trends are part of a wider movement by financial advisors to increase their outsourcing functions. Just as most middle- and back-office functions have been ripe for consolidation to outsourced partners, so too is the trading function. In particular, recent experience with the pandemic and the mandatory shift to remote working has shed new light on the efficiency gained from certain functions being handed off to an outside partner.
Cost is a key factor to consider. If you dedicate all or part of a staff member’s time to trading, outsourcing is likely to be more efficient from a cost perspective.
Case Study: Bob and Mary
Let’s briefly look at the hypothetical example of clients Bob and Mary. They’ve been dreaming of taking that bucket list trip of a lifetime and have decided now is the time to make it happen. They call your office and request you to clear cash from a model portfolio to help them finance their journey.
Now, think about the steps required to make that happen. Do you have a designated staffer on your team who is tasked with day-to-day trading execution, or do you drop what you’re doing to focus on this request yourself since Bob and Mary are among your largest clients? And if you receive multiple requests simultaneously, does it become an office fire drill to execute them effectively and on time?
This is where outsourcing can help. With the right trusted partner, trades can be executed seamlessly and efficiently, with no fuss or distraction from your day. Ultimately, outsourced trading can enable independent Advisors to focus on their core competencies of investment strategy and generating growth and income for their clients while at the same time significantly reducing the overhead and oversight needed to maintain the trading function in-house.
GeoWealth offers trading services for firms looking to achieve scale, and our Investment Management and Trading teams have the tools to efficiently manage model portfolios. Through our Advisor Service Center, Advisors can communicate trade requests such as a new investment, a systematic withdrawal, or dollar cost averaging directly on our online platform along with real-time status updates on each request.
Contact us today for more information about how we can efficiently and effectively streamline your trading function.
1 Northern Trust (2020). Driving Growth in Asset Management, Solutions for the Whole Office in 2020 and Beyond.
2 Sionic & BNP Paribas (2019). Outsourcing: A New Dawn for Dealing Desks.