Why more advisors are considering outsourcing investment management


Barrett Ayers is President of Adhesion Wealth, a Registered Investment Advisor (RIA) and fintech company specializing in managed account solutions. Adhesion Wealth’s advanced technology provides RIAs with the tools to address the complex operational challenges of wealth management through the platform. Barrett helps RIAs use model portfolios and outsource their underlying asset management responsibilities so they can spend more time focusing on developing client relationships and growing their practices.

Russ Alan Prince: Tell me about Adhesion Wealth and the challenges the company helps advisors solve.

Barrett Ayers: Financial advisors have many hats to wear, starting with financial planning and portfolio construction, which involve time-consuming tasks such as customizing asset allocation, finding the best managers, executing transactions and rebalancing. At the same time, they need to focus on nurturing their customer relationships and attracting new assets. Without the right support, it can be a daunting job. In our recent study, we found that more than two-thirds of advisors surveyed believe outsourcing gives them more time to spend on client relationships, customer service and business development.

Adhesion works with advisors to provide portfolio building tools that help them work more efficiently. The Unified Managed Accounts platform is designed for growth-minded advisors looking to offer sophisticated investment management, including smaller RIAs trying to differentiate themselves and their services. Adhesion believes that giving advisors access to simplified asset allocation, research, top managers, risk analysis, rebalancing and other investment management tools positions them to improve service and increase assets under management. Customers also benefit in the area of ​​performance; in our survey, more than a third of advisors cited better overall investment performance as the top benefit of outsourcing.

One of the main ways we help advisors with the challenges of running a business and working with clients is by outsourcing investment management, including tax management. For example, we created a model marketplace to connect investment advisors to over 4,000 models from nearly 500 institutional asset managers. Advisors using the Model Marketplace can communicate their investment criteria to managers and receive accurate, up-to-date performance reports. By using solutions that simplify portfolio construction and provide access to new asset classes and leading managers, advisors can focus on managing clients and growing the practice.

Prince: How does outsourcing investment management help advisors grow their business?

Ayers: To drive growth, RIAs must implement business improvement strategies that help them deepen their relationships with their customers, prospect new ones, and develop a unique value proposition to outperform their competitors. As many aspects of investment management have become commoditized, more advisors are realizing they need to evolve their offerings and expand beyond simply providing financial and investment management plans. , to provide more holistic advice and focus more on customer experience.

Value-added services such as tax planning and strategy, bank deposits, estate planning, lifestyle management, charitable planning and family education are growing in importance. Having the capabilities to execute on these various components of a client’s wealth can make an advisor’s value proposition more attractive.

By outsourcing different aspects of their business, advisors can spend more time finding ways to provide these specialized services. Advisors tell us they want to differentiate themselves and deliver superior performance by offering a wider and better menu of investments while freeing up time for clients.

Outsourcing can also be a key strategy for outsourced advisors looking to attract new clients. According to Cerulli’s report on the US RIA market, many RIAs are launched without adequate external support, lose the operational capabilities of a broker/dealer, and have to create new processes to internalize the missing pieces. Third-party actors can help ease the tension that RIAs feel between “business owner” and “advisor,” and how they deal with the challenges of value differentiation, profit margin squeeze, and competition for talent.

Finally, while many advisers may worry about how outsourcing will increase costs, Membership surveys of RIAs have found that operating costs can actually go down by outsourcing management. investments. More than half of advisors who currently outsource their investment management say their operating costs have gone down since they started outsourcing, with 40% seeing a 5% drop in costs or more, according to our study.

Prince: How do advisors determine what type of outsourcing model is best for their business?

Ayers: A 2020 RIA Benchmarking Study by Charles Schwab identified various business areas where advisors seek outsourcing assistance, including marketing, growth and technology strategies, as well as back-office, cybersecurity and staff development through coaching and mentoring, as well as training. in sales and business development.

In order for advisors to determine which areas of outsourcing can benefit clients and their business, for example, whether it is portfolio management support or real-time performance reporting, they need to determine what areas will help them most to deepen relationships and what the customer needs are. they seek to assume. Advisors should consider what will benefit the end investor and contribute to their company’s growth strategy.

The size of the business is another factor determining which outsourcing approach to take. According to Cerulli, 24% of RIAs cited the “time required to run a business” as a major challenge for operating an RIA; 86% of surveyed RIAs with less than $25 million expressed this concern. Compared to other challenges studied such as operational responsibilities and practice management support, this was the most significant challenge.

One important area where advisors may differ in approaching outsourcing is the degree of control they want over investment management. An advisor can partner with a managed account/unified managed account platform like ours for advice on manager and fund selection. Advisors who want a higher degree of control in managing investments can look for models or options that allow them to play a role in customizing investments. Unified managed accounts enable the provision of customizable investment solutions for investor clients and the economy is a win-win potential. Unified Managed Account can offer a flexible account structure to create the right wallet solution for each client, in a highly scalable way.

Russ Alan Prince is Executive Director of Private Wealth Magazine and Chief Content Officer of High-Net-Worth Genius. He consults family offices, quick-and-rich entrepreneurs and selected professionals.

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