Five Critical Reasons Why Financial Advisors Should Consider Outsourcing Investment Management. - Cardea Capital Advisors

Five Critical Reasons Why Financial Advisors Should Consider Outsourcing Investment Management.

In 2019, there were 12,993 registered investment advisors (RIAs) working in the United States.1 Considering the sheer number of competitors, it’s no wonder that many advisors find it difficult to differentiate themselves and significantly expand their business. Shifting regulations and increasing competitive pressure simply add to that challenge. Between the demands of clients and keeping up with industry changes, advisors may find there is little time or energy left to find ways to stand out.

Fortunately, there is good news. Many financial advisors have discovered that outsourcing investment management can free up significant time in a way that allows your firm to finally get past roadblocks and grow more consistently.

Investment Management: Not What It Used to Be

With assets at U.S. robo-advisors forecasted to reach $1 trillion by 2022, low-cost and automated investment options are not going away anytime soon.2 With these and other fintech offerings continuing to grow, the concept of investment management is not what it used to be in the eyes of the consumer. Unless you have a truly unique offering, it can be challenging to attract and maintain the attention of prospects.

That is why many advisors are discovering and embracing the concept of outsourcing this part of the business.

By offloading this somewhat commoditized part of your service, you free your time and energy up to focus on the things that can move your firm forward.

Five Reasons The Time is Right To Outsource Investment Management

Not often can one simple operational change impact your practice so profoundly, but outsourcing investment management has the capability to do just that. Here’s five reasons you may want to consider it:

1. Free Up Time to Provide More Complete Service

When you decide to outsource, you bring on a team of experts dedicated to asset allocation, investment fund selection, risk management, and investment monitoring and rebalancing. Your role switches to more of a true advisory role, helping your clients clarify their investment objectives, then understand and monitor their investments. You also add an important additional layer of protection—a double check—to provide the client with a feeling of security.

Then this frees you up to provide true full-service financial planning, as well as tax planning, estate planning, college funding. This may also include helping clients cut costs, refinance, and restructure debt as needed.

Instead of being tied to your desk monitoring the market, you can focus on helping your clients achieve their short and long-term financial goals which can equate to happier and more satisfied clients.

2. Grow Your Firm and Increase Your Earnings

Surveys show that outsourcing to a TAMP can help an advisory firm increase revenues and profitability. A study of over 8,000 advisors over a 10-year period showed that those who outsourced added an approx. $14.5 million in assets annually over those who didn’t.3

Additionally, the same survey found that those who outsourced added an average of 14 new clients each year, while non-outsourcers added only 4.

3. Differentiate Your Services

Which of your RIA’s services have the biggest impact on clients? Unless you’ve got a unique edge, it is not usually investing that is the memorable part. Instead, it is the financial planning, saving them money on taxes, helping with estate and college planning…helping them clarify their goals and achieve them.

These services can all make the biggest impact, and it is with these services that you can often best differentiate yours.

Once freed up from day-to-day investment monitoring and management, you’ll have far more time to spend on these aspects of your business. This can help you differentiate your firm by further specializing and expanding in these areas.

Also, adding the right type of TAMP can help you provide more sophisticated investment strategies too, in some cases. For example, if you work with a TAMP that offers institutional strategies or alternative investments, this can be an additional way to differentiate your overall service package. Clients reap benefits by combining personal, specialized service from your firm with an expanded team incorporating institutional resources and capabilities.

4. Increase Your Personal Life Balance

Another significant reason to outsource is that it can help you reduce stress and gain more free time. For some, it may be preferable to work less and maintain your current book of business. If that’s you, you can use that time for physical fitness, family time, or whatever you need more of.

Whatever it is, that is an easy way to improve your quality of life and health through better work/life balance.

5. Free Up Time for Sales and Marketing

Finally, to really grow your firm you know you need to focus on marketing and sales. But with your busy schedule, where do you find time? According to a recent article by Michael Kitces, “the typical advisor is struggling with time management and is spending far more time on and in the business than they ever realize.”4

Outsourcing can give you the time to devote to sales and marketing so you can create growth. Whether you have been thinking about blogging more or starting a podcast, freeing up your time can help you finally make that happen.

Even better, some TAMPs even will provide leads and digital marketing support, giving advisors a jump start to growth.

Enter Economic Uncertainty

In uncertain times, your clients need you even more. They need more general financial planning, debt management, financial coaching, tax planning, estate planning…the list goes on and on.

This is where an outsourced solution can help right now. There are many available to you, either through a broker-dealer or through a specialized Turnkey Asset Management Program (TAMP). These platforms allow you to shift the day-to-day portfolio management responsibilities to a third party team of specialists. Then you sit on the same side of the table as the client and become an advisor in this role, too. This frees you up to focus on the client’s more immediate goals of whatever it takes to help them feel more confident about their money and their future. In that way, it shifts you back into the true role of an advisor, which is the work many people enjoy most.

Finding the Right Fit

Now, all of this is contingent on finding a firm that is the right fit for you. But if you’ve never worked with a TAMP before, how do you know what to look for?

Here are some tips on looking for the right provider:

1. Enhanced Offerings for Various Client Needs: Your business will prosper with a firm that can enhance your investment offerings and capabilities. The ability to identify multiple investment solutions will make transitioning existing clients, your future marketing efforts, and long-term growth easier. Look for a TAMP that has the right capabilities for your business so you can offer your clients and prospects features like institutional style investment management, specialized strategies, and alternative investment options.

2. History and Experience Coupled with Flexibility and an Innovative Mindset: Advisors need a firm run by people with the roots and history in these markets to know they will be there for you and your clients as you grow and have the history and expertise to navigate many market cycles. Take time to learn about the investment professionals’ history as well as their ability to create solutions to novel issues and changing markets, so you know you are making a sound choice for now and in the future.

3. Marketing Support and Idea Generation: The best TAMPs are able to provide marketing support that can help you grow, such as networking, providing leads from their own marketing efforts, and the creation of materials to help guide your marketing efforts. Additional support in marketing are extremely valuable, especially for smaller firms that want to grow.

4. High-Touch Service: Identifying a TAMP that you can trust is crucial for your business. Advisors need a reliable firm that provides prompt service and uncomplicated processes. Ensure their responsiveness so that your clients’ experience is seamless and simple from the transition to your clients day to day needs.

5. Specialized Fit: Finally, the TAMP should be a good fit for your current and ideal clients. A TAMP that is more suited to the mass-market is a great fit for clients that don’t have the need for specialized services. However, high and ultra-high net worth clients need specialized services, access to expanded asset classes and more due diligence to help them meet their specific financial goals. High-end clients deserve high-end service and offerings that advisors can more readily available with the help of the right TAMP.

While outsourcing investment management isn’t for everyone, there are clearly many benefits for firms that are looking for an edge. As you can see, it is a big decision, but it might be the one that you wish you made sooner.

This is not an offer of sale of securities. All investing involves risk, and particular investment outcomes are not guaranteed.

Endnotes
https://www.barrons.com/articles/number-of-rias-hits-record-high-51568688482
https://www.wealthadviser.co/2020/05/18/285696/us-robo-advisory-industry-hit-usd1tn-value-year
https://www.investmentnews.com/advisers-who-outsource-investment-management-make-more-money-than- those-that-dont-study-69452
https://www.kitces.com/blog/how-do-financial-advisors-spend-time-research-study-productivity-capacity-effi-
ciency/

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