Why Advisors Should Consider Outsourcing Investment Management


Financial advisors are unique. They wield great responsibility and influence, with the ability to directly impact the financial well-being of their clients. The level of impact is unlike most professions in business.

With so much responsibility and influence, it’s odd to hear that financial advice is becoming commoditized. Yet, we hear it all the time and, unfortunately, it’s true.

Advisors have seen commoditization tangibly impact their businesses over the last decade. The rising adoption of direct-to-consumer robo advisors and continual fee compression are two prime examples.

Whether from innovations in fintech, consistent market conditions that alter client attitudes and perceptions (like our recent bull run), or the emergence of a new generation of investors with differing preferences than the ones before them, advisor value is changing.

That’s why we think advisors should consider outsourced investment management.

Most advisors face the same constraints. The market is saturated with advisors, all of whom look and sound similar (at least to a client), and most of whom are fighting to find enough time to effectively grow and manage their business.

We have a differentiation problem (or opportunity, depending on how you view it).

Outsourced investment management programs are widely accessible to advisors, whether through their broker dealer or a Turnkey Asset Management Program (TAMP) like us. These programs allow advisors to rely on select third-party strategists for day-to-day client portfolio management, such as trading and rebalancing.

According to RIA in a Box, most advisors don’t do this. But maybe more should.

The primary objection we hear to outsourced investment management is that advisors feel that their perceived value to clients will be lost. If you aren’t handling day-to-day portfolio decisions, then what are you here for?

That raises an important question. What is the primary value clients seek from a financial advisor, today?

According to a recent study by Dimensional Funds, the top value of an advisor is the ability to deliver a sense of peace and security – ahead of investment returns, progress toward their financial goals, and knowledge of their personal financial situation (respectively).

Clients have much broader expectations for advisors than investment management alone. When they look at an advisor, they see a financial guide who is equipped to help them navigate the uncertainties of financial management. They want someone who can help them solve their financial challenges, holistically.

Outsourcing investment management helps advisors focus on solving clients’ broader financial challenges.

Investors find value in a wide array of investment services. While investment management is at the top, that doesn’t necessarily mean advisors should manage those processes manually. Rather, through outsourcing investment management, advisors can place increased focus on a broader range of value-add activities without negatively impacting the quality of investment management.

Outsourcing investment management helps advisors find the time needed to broaden their scope.

BlackRock has found that advisors spend over 800 hours a year on investment management. That’s roughly 40% of an advisor’s yearly work hours (assuming an 8-hour work day, 50 weeks a year).

By taking advantage of third-party investment strategists, advisors can take back a large chunk of that time and re-allocate it to relationship-building activities.

Outsourcing can also help strengthen the advisor value proposition, particularly with the ability to deliver peace of mind. Investment strategists’ primary focus is building and managing investment models. While they do other things, such as provide advisor and investor education, their core value revolves around investment management.

Many advisors don’t have that luxury.

In addition to managing each client’s investment portfolio, advisors must also manage their overall book of business. That means client meetings, prospecting calls, and managing their team (if they have one). Advisors are also expected to provide financial guidance on a wide array of topics – including tax management, legacy planning, saving for major life events, and charitable giving.

For an advisor, investment management is only a piece of the broader client experience.

By outsourcing, an advisor can make the case that they are doing everything in their control to provide the highest quality investment management to clients, assuming proper due diligence and strategist selection – a benefit of using third-party programs, like a TAMP, which will typically vet and monitor strategists through a comprehensive due diligence process.

Creating model portfolios within the TAMP structure can be an advanced form of investment management. The ability to utilize institutional strategists as building blocks for client models may heighten the client relationship and position an advisor’s offering as unique - versus more traditional portfolios made up of ETFs, funds, or equities from multiple sources.

Advisors are unique. They are more than stock pickers. They are investment managers, financial planners, lifestyle coaches, and guidance counselors. To a client, an advisor is a source of stability and security. Those that outsource to better deliver more holistic financial guidance can find competitive advantage over advisors who independently manage their clients’ investment portfolios.