How outsourcing investment management will improve your practice

By Christopher Ambridge | March 9, 2016 | Last updated on September 21, 2023
3 min read

Managing wealth has evolved beyond investment management. Advisors must provide greater value to their clients to justify their fees, or else risk losing business to lower-cost competitors. Clients’ growing demands can cause stress for any advisor trying to develop a successful practice.

Advisors need to differentiate themselves from industry alternatives by providing services that strengthen client relationships and create loyalty. This includes not only investment management, but also financial planning and client communications.

Often, client demands, staffing challenges and office management get in the way of productive responsibilities like networking and building relationships. There’s a simple solution that could improve your practice’s efficiency and allow you to run it the way you’ve always wanted. It’s to delegate as many non-revenue generating tasks as possible.

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Deciding whether to outsource

How much of your day is spent on administrative tasks, portfolio management, market analysis, trading, and compliance? Some advisors estimate they spend nearly half their time on these responsibilities. With increasing regulatory burdens, that trend is not easing.

Your goal shouldn’t be to work harder, or to spend more hours at the office, but to work smarter. By outsourcing these time-consuming activities to an outside investment management firm, you can focus your effort on building relationships through networking, prospecting, financial planning and client management.

Finding the right investment managers

When selecting money managers there are four key principles to keep in mind.

1. Portfolio: Does the manager have a philosophy that is entrenched in the portfolio over time? Is the level of risk appropriate?

2. Performance: Are the manager’s performance results consistent with the stated investment process? Do he or she consistently outperform the benchmark?

3. People: Does the manager have reliable experience and ability? Does he or she assess and operate on information wisely?

4. Process: Does the manager have a clearly stated investment process? Is it applied consistently?

When determining the right firm to partner with, expect money managers that are:

  • passionate about the business;
  • understand your business practice and philosophy;
  • have the capabilities to go the extra mile to support investors;
  • are available to respond quickly;
  • and provide assistance as needed.

You should also determine if the firm uses proprietary products or works with external money managers. This could impact the fees your clients ultimately pay.

Read: 2 strategies for being a competitive advisor

What about the costs?

Often the cost of using an external provider is better than working with in-house resources when you consider factors such as costs for staff, training, systems and monitoring. An even greater consideration is the cost to your clients.

When partnering with an external provider, determine if there is a flexible fee structure. While some costs may be fixed, you should be able to set your fees and determine how much your clients will be charged. This is perfect for practices that segment their books or vary fee structure by asset size.

How does this process work?

The right investment managers can be an extension of your office. They can handle your investment and administrative needs, such as determining asset allocation, researching investments, selecting portfolio managers, and providing due diligence.

On administration, they can take care of trading for clients’ accounts, managing clients’ cash needs, overseeing fee-based billing and reporting, and providing regular investment updates to clients. Investment managers should work with you to customize your service experience so you can work as efficiently as possible.

Read: Segment your book for a stronger firm

Getting value for your clients’ money

Investors should expect their advisor and managers to work together to meet goals with quality service and performance. Any partnership should establish checks and balances to ensure potential transgressions don’t occur.

In order to accomplish this, advisors must: understand the manager’s processes; let managers know what they need; and help managers build their businesses. In return, money managers should do the same for advisors.

Clients often find they aren’t getting enough time with their financial advisors. They get frustrated when advisors are too busy to properly address their questions. It is no wonder many advisors don’t have the time for clients, when they’re too busy trying to do everything themselves. Consider outsourcing to free up your time to address clients’ growing demands.

Christopher Ambridge