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Why Outsourcing Portfolio Planning Using Model Investment Strategies May be Right for You.

Increasingly, financial advisors are finding themselves facing more complexity in serving their clients and less time to accommodate their needs. So, it isn’t surprising that outsourcing is growing in popularity as a portfolio planning resource. But what exactly is outsourcing? How are advisors integrating Model Investment Strategies into their practice? And how can it positively impact the quality of service advisors are able to provide?

 

Using outsourced portfolio planning to help build your business.

Outsourcers use models suggested by a Broker-Dealer, Turnkey Asset Manager Platform (TAMP), asset manager or third-party strategist provider without modification. An outsourcer may be any of a wide range of investor types focused on delivering planning and investment decisions.

The reasons for the growth of outsourcing are starkly evident and on the increase. As the investing landscape becomes more complex, so do client demands. Nearly half of financial advisors surveyed now view unrealistic client expectations as the greatest threat to their business. 1 Advisors wear numerous hats: financial planning and portfolio construction, customizing asset allocation 2, identifying manager talent, executing trades, and rebalancing3. But they also need to focus on nurturing client relationships and attracting new assets. There simply isn’t enough time to meet these demands and continue to grow.

Outsourcing can help. By delegating the more time-consuming aspects of portfolio planning, such as asset allocation, security selection and rebalancing, to a third-party, advisors can free up time to foster client relationships and build their book. Some of the tasks outsourcing can manage include:

  • Engaging in active monitoring of strategies and investments4
  • Providing portfolio guidance based on a grounded investment philosophy
  • Servicing portfolios that cover a range of goals from savings to regular income in retirement
  • Constructing custom portfolios for high-net-worth clients and those with unique needs
  • Offering technology solutions, compliance, marketing, and other enhanced services

Offloading these necessary but labor-intensive tasks can free you to turn your focus toward prospecting, engaging with clients and growing assets under management. Overall, advisors who utilize outsourcing find that they are better able to deliver investment solutions for clients, implement a more consistent approach to managing client needs across the business, increase the valuation of their practices and make the business more portable in case of future custodial or broker dealer changes.

 

Providing better solutions for clients.

On average, globally, advisors report spending just over 55% of their time on client facing activities according to Cerulli Advisor Metrics. Delegating the more labor-intensive tasks of investment management – such as establishing an asset allocation strategy and implementing portfolio decisions, providing risk management and ongoing oversight – can directly benefit clients.

Solving capacity issues. Each client has unique needs and all the options can make it overwhelming to create an individualized plan with the level of attention many expect. Outsourcing lets you overcome capacity constraints without adding staff and lets you confidently concentrate on growing your business knowing you can lean on your provider to adapt to new or changing demands.

Access to experienced professionals. The growing complexity of financial markets and widening range of investment choices make assessing their suitability a challenge. Outsourcing provides an opportunity to gain access to experienced investment professionals who trade and rebalance portfolios based on a stated investment objective and using a consistent methodology.

More time for client interaction. Reducing time spent on investment decisions and portfolio construction can mean more time to deliver more personalized service or take on more clients. The result? The ability to provide a level of personalized service and attention that gives you the potential to add greater value over time and gain a solid competitive advantage.

A more holistic approach to wealth management. Outsourcing lets you focus on helping clients set realistic goals, while showing ways to achieve them. Using a third party to help manage one area of clients’ finances allows you to emphasize the importance of other areas, such as how to consider spending and saving money — factors that can make a real difference in overall financial health.


Increasing scale, enhancing efficiency.

For advisors delegating investment management there is also a material impact on the growth and efficiency sides of their business’ profit. Many report gaining important advantages, including growth in total assets, higher business valuation, higher personal income, simplified compliance and reporting, and lower operating costs. 

You and your clients can still pursue the most appropriate investment strategy, but the focus becomes what your financial plan can achieve instead of the performance of individual securities and funds5.

In addition, you can maintain planning flexibility, investing in strategies as you and your clients see fit. Regular communication from a third-party portfolio manager helps you and your clients stay informed, so you can partner and make strategic adjustments as needed. By dealing with formal governance, documentation, and strategy reviews, an investment team can help you meet fiduciary responsibilities as well so you can provide more value and serve more clients.

 

Some common myths and misconceptions

Cost. Loss of control. Cookie cutter solutions. Complexity of implementation. These are some of the more common concerns advisors have about outsourcing, but the reality is that once integrated in their day-to-day operations, outsourcing frees advisors to make more of their opportunities. 

For example, while advisors sometimes expect outsourcing to be prohibitively expensive, many have found that the cost was less than they expected. More importantly, the growth in total assets and operating savings went right to their bottom line. And rather than giving up control, advisors discovered they had greater oversight of portfolios and benefited from a broader range of investment products and choices, enhancing their ability to customize portfolios. No wonder, then, that a recent AssetMark whitepaper reported that nearly 9 out of 10 advisors surveyed said that the benefits of outsourcing investment management have met or exceeded their expectations.6

Still, not all outsourcing partners are the same and you’ll have to do your homework to determine which potential partners will be a good fit for you. Investment philosophy, workstyle, and clearly defined and communicated business objectives are just a few of many factors that must be considered.

 

An increasingly important resource

If current trends continue, the importance of outsourcing as a strategic business tool will become more widespread throughout the industry. The flexibility it offers, as well as the time and labor-saving benefits it provides for increasingly time-stressed advisors make it an invaluable resource for portfolio planning. As client preferences continue to grow and an ever-changing regulatory landscape increases demands on advisors, the advantages of outsourcing will be critical to helping them grow their business and provide a higher level of service for their clients.

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1The Rise of Personalization (Broadridge 2023). Q. 31: What do you think are the greatest threats to your business; Ceruilli Advisor Metrics 2022; Cerulli U.S. Asset Allocation Model Portfolios 2022.
2Asset Allocation does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
3Rebalancing/Reallocating can entail transaction costs and tax consequences that should be considered when determining a rebalancing/reallocation strategy.
4Active portfolio management, including market timing, can subject longer term investors to potentially higher fees and can have a negative effect on the long-term performance due to the transaction costs of the short-term trading. In addition, there may be potential tax consequences from these strategies.  Active portfolio management and market timing may be unsuitable for some investors depending on their specific investment objectives and financial position. Active portfolio management does not guarantee a profit or protect against a loss in a declining market.
5Mutual Funds and Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
6The Impact of Outsourcing: How financial advisors are better serving clients and elevating their businesses, AssetMark 2019