For advisors who find themselves working at full capacity but are interested in continuing to elevate their business, outsourcing investment management can be an effective path forward. Some advisors have concerns about such a move resulting in loss of control, tax implications, or rising costs, but those perceived obstacles often do not reflect the true circumstances. In fact, outsourcing investment management offers advisors a chance to free up substantial time while providing their clients with the best possible investment solutions. If you’re considering outsourcing as an option, here’s what you should know.
Outsourcing Still Offers Oversight
The reality of today’s outsourcing programs is that they leave plenty of room for you to continue playing a critical role in the management process.
Choosing which managers you want to use for your outsourced accounts is up to you—and a variety of options are available, from third-party turnkey asset management programs (TAMPs) to the in-house managed portfolio models your firm partner may offer. By monitoring the managers’ process and performance and picking the right model allocation for clients’ risk tolerance and investment objectives, you retain meaningful control over monies held in these accounts.
In addition, outsourcing is not an all-or-nothing proposition. One common solution is to take a hybrid approach. For example, you might continue to manage nonqualified accounts but outsource retirement accounts that qualify for tax advantages. The rationale for this approach is to avoid the potential for tax ramifications when moving nonqualified assets that have appreciated.
Outsourcing Can Drive Considerable Value for Clients
Here are some reasons outsourced investing solutions can help raise the value your firm delivers to clients:
- Given the diversity of managed solutions available, you’ll be able to select the appropriate model portfolios and managers for each client, potentially meeting their needs more effectively.
- Many managed products can demonstrate a solid track record across model types, thus offering clients a clear, understandable story regarding investment suitability and performance.
- Managed accounts can facilitate the diversification of clients’ product choices by offering solutions that may fall outside your areas of expertise, such as alternatives or options strategies
- Clients can review a portfolio’s historical performance (subject to your firm’s compliance approval).
- With someone else managing the assets, clients get more time with you, so you can both work on deepening your relationship.
The value of these factors cannot be quantified, of course. But once you discuss the reality of outsourcing with your clients, you may find that the program fee is not an impediment for them—or a reason to reduce your fees.
Outsourcing Helps Make the Most of Your Time
Advisors who choose to build and manage client portfolios spend a substantial amount of time (or staff resources) on asset research, due diligence, investment reporting, trading and rebalancing, and other managerial tasks.
Outsourcing investment management can also mitigate the business risks of investment staff leaving your firm. When you manage your own portfolios and a key staff member leaves, your firm’s operations could be disrupted, leaving you shorthanded in the interim.
In short, outsourcing could greatly improve the scale and efficiency of your firm.
Choosing the Best Path Forward
Managed portfolio solutions offer different benefits to every advisor and client. When making your decision, ask yourself where your talents and passions lie and consider your priorities for the future.
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This post originally appeared on The Independent Advisor, a blog authored by subject-matter experts at Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.