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Time to Hand Over Part of Your Biz? 5 Key Questions

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Even very successful financial advisors can hit a wall at around $500 million in assets under management. Some simply find that there is not enough time to handle administrative and operations issues, manage client assets and spend time with clients and prospects.

But many of these same advisors have unlocked tremendous growth by outsourcing some of these tasks to third parties. After evaluating and deciding to focus more on their core strengths, these advisors outsource the activities they are less good or efficient at doing in-house.

For each activity, advisors should ask themselves: Is this the highest and best use of my time? Or is offloading this activity -- that someone else can do better and more efficiently -- a smarter move?

When considering outsourcing, it's important for advisors to research the most effective options in order to best leverage their time. Here are some of the top questions we hear from advisors thinking about such a change:

1. What is the benefit of outsourcing?

Outsourcing allows an advisor to spend more time on things that leverage their core skill sets. Often these are client-facing activities that help deepen client relationships and help advisors grow their business. If an advisor's goal is to structure their business to gain scalability, outsourcing can be an important component of this strategy.

According to 2013 Cerulli Advisor Metrics, here's how independent advisors spend their time: 

  • Client-facing activities (51%)
  • Investment management (26%)
  • Administrative issues (19%)
  • Business development (4%)

Both client-facing and business development activities are an effective use of an advisor's time. But administrative issues, which are generally not an effective use of an advisor's time, take up nearly 20% of their time. If an advisor outsourced some or all of these administrative issues and brought that number down to 9%, then they could shift that valuable time over to client-facing and business development activities.
There are also outsourcing options that could effectively assist in investment management and free up some of that time (26%) to spend with clients and prospects. This could be outsourcing the entire investment chassis in an outsourced CIO model, or more limited in scope to outsourcing research or investment operations.

2. What is the cost of outsourcing?

Obviously, the actual cost of outsourcing is a wide range depending on what an advisor outsources. Advisors can outsource technology, research, marketing, as well as legal and financial components of their business. 

We work with advisors to help them identify those parts of their business that will benefit from outsourcing as well as the impact on their P&L. 

As an example, outsourcing the bookkeeping function to a firm that handles bookkeeping for multiple businesses may cost your practice $1,500 each month but it may save you 20 working hours.  This allows advisors to re-focus those 20 hours on business development activities.  The return on that $1,500 expenditure will have a positive impact on the business for years to come.

Our response to this question is: What is the opportunity cost of not outsourcing? We urge advisors to make the investment in outsourcing in order to spend more time solving client problems and expanding their business.

3. What's the risk of diminishing my value to clients when outsourcing investment management?

The short answer is that, done correctly, the outsourced CIO platform is a positive for clients and advisors, not a risk. According to a recent Northern Trust survey, 90% of clients were satisfied with their advisor using an outsourced investment platform.

There are excellent tools and capabilities that can make the investment process more efficient. Using UMA technology vastly improves the efficiency of managed money portfolios. We encourage advisors to explore rebalancing tools and advisor as portfolio manager (APM) capabilities and ask themselves: Can I handle investments in a more efficient way? Other outsourced services include manager research -- traditional and alternative, SMA/UMA, trading tools and capital markets sourcing. 

Outsourcing investments does not mean that advisors are not in charge of their investment process. We often partner with advisors to build custom solutions and models designed around the advisor's world view and then our investment operations team and investment committee helps monitor and manage the program on behalf of the advisor's firm.

The Cerulli Advisor Metrics survey stated that 26% of an advisor’s time was spent on investment management. If an advisor can bring that number down to 10%-15%, they would substantially increase the time they can spend with clients.

4. Who is in control of my business if I outsource my operations and administrative issues?

In some ways, an outsourced COO platform puts an advisor's business more firmly in their control because they are able to focus more time on their current clients and growing their business instead of handling administrative tasks. It can also give advisors more time to focus on their top asset other than clients -- their employees. 

In essence, the outsourced COO platform is a positive for both advisors and clients. Handled correctly and with the right partner, outsourced operations and technology take a huge burden off the advisor and enable them to focus on client issues, referrals and business development. 

Outsourced capabilities include reporting and billing, planning tools, CRM, P&L analysis, and legal and compliance services.

5. What are the biggest mistakes advisors can make in outsourcing?

The biggest mistake advisors make is thinking of their outsourcing capabilities as a vendor -- 'I’ll buy a service from someone,' they say.

Advisors should instead think of outsourcing as a partnership, ideally an extension of their business. They should evaluate the resource partner in the same way they might a new employee. Do they understand the business? Is it a cultural fit? Will it be additive to client relationships?

It's also important to stay abreast of changes in the business. This is a dynamic industry -- technology and investment options are completely different than 10 or even five years ago.

Done correctly, outsourcing components of the business can create a more scalable and sustainable model, allowing the advisor to focus on clients and growth.

Shirl Penney is the president and CEO of Dynasty Financial Partners.

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