Outsourcing Money Management

Outsourcing Money Management

According to a recent study, 57 percent of advisors outsource money management of specific asset classes, while 29 percent outsource all asset categories. Of those who outsource, more than half use Turnkey Asset Management Programs (TAMPs), while more than a third use multiple firms. Advisor satisfaction with their investment management outsourcing is extremely high at 92 percent.1

While many advisors consider investment management as their core value proposition, they may need to think about outsourcing this function, depending upon how they answer several key questions:

• Does my practice have the breadth of skill to adequately manage the full range of asset classes that comprise a modern, diversified portfolio?

• What is my practice’s bench strength? In other words, how would my clients’ money be managed in the event of my temporary absence?

• Is the time committed to managing my clients’ money limiting my ability to grow my practice?

Benefits of Outsourcing Money Management Duties

There are a number of distinct benefits for advisors and their clients when some or all of the investment management function is outsourced.

• More Effective Resource Allocation. By hiring investment managers, advisors can more effectively leverage their time and expertise to manage other areas of their practice.

• Improved Client Servicing. To the extent time is spent on research or trading, it is not spent on helping clients. Watching the market may mean client service standards suffer. When investment management is outsourced, time is freed up to spend with clients.

• Better Alignment with Clients. The advisor who is an asset manager has never fired him or herself for underperformance. This structural obstacle to firing one’s self represents a built-in conflict of interest. When an advisor hires a manager, their performance can be more objectively evaluated and a manager can be more quickly replaced, if necessary.

• Building a More Profitable Business. When an advisor manages his or her own clients’ assets, there are capacity issues that may develop. An asset manager may not be able to effectively prospect new clients or broaden the profitable opportunities that exist with current clients.

The “asset manager” advisor may be a great advisor, but more and more advisors are finding that hiring outside investment managers to care for their clients’ money may be the best way to serve their clients and achieve the larger scale necessary for their practices to flourish.

1Outsourcing Investment Management: Impact on Clients, Northern Trust Asset Management, February 2014.

See referenced disclosure(s) (4) (5) at http://blog.americanportfolios.com/disclosures/ .

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