Successful outsourcing of functions like investment management, legal and compliance, and marketing/communications appears to be good for business, according to new research by Fidelity.
Advisors who outsourced two or three of the top three outsourced functions reported experiencing higher growth in the number of clients in the past year (81%) than firms that did not do so (71%). This is according to the 2018 Fidelity Financial Advisor Community: Outsourcing Trends study, which also reports that advisors who outsource experienced growth in AUM in the past year more often (95% versus 89%).
What’s more, the study shows that at the advisor and individual team level, outsourcing allowed advisors to manage more assets ($145 million versus $110 million) and resulted in greater compensation ($365,000 versus $335,000) than those that do not outsource. In fact, 43% of respondents agreed that outsourcing is essential to achieving scale in growing a firm or practice.
Overall, nearly half (43%) of advisors say their firms currently leverage external consultants, third-party providers or individual specialists for select business functions, with the top three being investment management, IT and legal.
Value Driven
Drawing upon the growth opportunities, the top reason advisors and firms chose to outsource investment management specifically was to create more value for clients (49%). Outsourcing of investment management also allowed for a “seamless” experience for clients, the study notes.
“Advisors are able to focus on building deeper relationships with their clients by focusing on what matters most to investors which, increasingly, is planning-centric and goals-based financial advice,” notes Todd Roadman, senior vice president for Fidelity Clearing & Custody Solutions.
“We’re asking wealth management firms to take a hard look at their firm’s functions and ask themselves, ‘Is this driving value?’ Advisors shouldn’t be afraid to consider letting go of the areas outside their core competencies,” Roadman emphasizes.
The top functions that firms outsource are:
- IT/technology (48%)
- investment management and portfolio construction (40%)
- legal and compliance (37%)
The top three reasons identified for hiring specialists were:
- optimizing overall firm efficiency and productivity (70%)
- filling a gap in internal expertise in the outsourced area (62%)
- saving time (60%)
Of the advisors and firms that hired specialists, 84% indicated they had a successful experience. Fidelity’s study shows that the top reasons behind the success were:
- helped save time (77%)
- vendor had qualified expertise (70%)
- helped increasing productivity (66%)
- helped optimize efficiency (57%)
- allowed firm to focus on deepening client relationships (53%)
The study was fielded from May 18-31, 2018, with participants that included 383 advisors who manage client assets either individually or as a team, and work primarily with individual investors. Those advisors were from a mix of banks, independent broker-dealers, insurance companies, regional broker-dealers, RIAs and national brokerage firms.
