Tag Archives: Outsourcing

Around the RIA Web with Adhesion, April 2016

A few great reads from the month of April, highlighting some of the key conversations we’re having with advisors. Growth, technology, investment design, outsourcing, recruiting, compliance…all are key discussion points for RIA firms and we share the following for your own discussions:

Tim Harford on the compromise effect and the paradox of choice, relevant for how advisors choose investments and their clients choose an advisor.

Michael Kitces uses the context of diet and exercise to show how advisors can use small financial planning goals to help clients on a successful long-term journey. More excellence from Michael on the evolving skill set of the modern advisor.

Ben Carlson on building failure into your process, so important in developing robust investment plans. This pairs well with his post on the dual mandate of an investment advisor, that the best plan for a client is one that survives the real world.

Tom Brakke states well the obvious flaw in starting manager research with a performance screen, and Corey Hoffstein shares the additional problems with using 3 years as a lookback period. The team at GestaltU covers the perils of past performance quite well in this excerpt from its new book.

A great advisor views his/her role as one of deep relationships, personal advice, and ongoing coaching through the journey. Awesomeness from Josh Brown on The Job Security of a Great Advisor.

Our advisor clients tend to embrace the flexibility of an open-architecture platform, again demonstrated in our approach to “robo”.  Some providers have chosen a more bundled approach to advisor solutions, later requiring a messy divorce in trying to replace any specific component.

Are you marketing to a niche market, or truly serving one? Julie Littlechild neatly explains the difference.

When it comes to data, more is not always better. As Tadas Viskanta explains, comparing different eras is hard and in investing can be downright dangerous.

Josh Brown on how bad active management is being taking to task. Jake at EconomPic shows when good active management can be worth the cost. Patrick O’Shaughnessy rounds out this topic with a wonderful illustration of the difference between seeking alpha and seeking assets.

Speaking of expensive active management, ThinkAdvisor reports that the SEC is prepping a 2016 initiative on 12b-1 fees, a hidden cost of mutual funds that gets disclosed but rarely discussed.

One trend sure to continue with the new regulations is mergers and acquisitions of RIA firms. Investment News summarizes this trend, and shares good ideas on items to consider in any potential arrangements.

Speaking of new regulations, some solid advice from Russell Investments on creating, documenting, and reviewing best practices for healthy client relationships.

The consummate guide to the DOL ruling from Michael Kitces, incredibly thoughtful and no stone unturned.

JP Morgan puts out a wonderful Guide to the Markets every spring, with all kinds of fun and informative graphics.

Adhesion continues to work behind the scenes in helping advisors grow, with new options allowing the integration of Outsourced CIO implementation via Mercer and robo technology via Riskalyze. We welcome your feedback at solutions@adhesionwealth.com, and encourage you to subscribe on the upper right of this page to receive our regular blog updates.

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Why Outsourcing May Make More Sense Than You Think

As stocks continue to ride high, some RIAs are finding that this enduring bull market can be a double-edged sword.   While staying busy is a good problem to have, advisors across the board are also reporting increased levels of stress. We often hear advisor feedback to the effect that it feels like there just aren’t enough hours in the day to get everything done, particularly when it comes to managing the back-office.  Ultimately, what many in the industry seem to be searching for is a way to get the job done while making more time for their clients and families. This dilemma is causing many RIAs to consider some kind of outsourcing solution.

Two Main Points to Consider Regarding the Decision to Outsource

In a July 28th ThinkAdvisor article entitled “When Outsourcing Investment Management Makes Sense,” Mike Patton (President of Integrity Wealth Management) discusses why outsourcing began to make sense for him and his business.  As he points out, there are two main points to consider regarding the decision to outsource.  First, to quote Patton, “it will free up your time so you can concentrate on marketing, financial planning or whatever else you choose to do.”  However, there is also the issue of cost.  Patton points out that the outsourcing fee will come out of the advisor’s revenue unless it’s offset by raising client fees.

Patton says a key factor in his decision to outsource was the discovery that he could actually keep his revenue while reducing the fees his clients pay.  How?  Here’s how he explains it.

“In their SMA (separately managed account), they will invest in individual stocks and bonds. When you consider the fee they charge for their SMA (0.50%) and include the basis points levied by my custodian (0.05% to 0.25%), the client will be paying less compared to this company’s retail mutual fund which has an expense ratio of just over 1%. Plus, the custodial fee in the SMA includes all transaction costs. Hence, I will earn the same revenue and the client will pay less. It’s a win for everyone involved.”

Another advantage to outsourcing, according to Patton, is the back-up factor.  He argues that outsourcing portfolio management can actually increase the value of your practice since it doesn’t all rely on you alone.  It can also give your clients a sense of security, knowing there are multiple layers of management overseeing their assets.

Patton’s story is a great example of how, for many RIAs and particularly smaller firms, outsourcing can bring the best of both worlds: the opportunity to add more client Alpha and the ability to leverage the power of a TAMP.

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Most Advisors Now Adding Outsourcing: Clients Approve and Businesses Grow

A recent article in ThinkAdvisor discussed a newly released study conducted by Northern Trust on advisors and outsourcing investment management.  The results might surprise you.

Northern Trust found that 92% of clients reacted positively when told by their advisor that the investment management part of their services would be outsourced.  In terms of retention, 80% of advisors said they lost no clients when they switched to outsourcing.  And perhaps most compelling of all, 70% of advisors saw their business grow after they began outsourcing their investment management services.

This is great news for advisors and outsourcing providers.  It’s not just clients responding positively to outsourcing; Northern Trust also found that throughout their study 90% of advisors remained satisfied with their outsourcing solution.  Combine that with the fact that advisors are retaining clients and growing their business, and we are seeing overwhelming acceptance and appreciation of outsourcing across the boards.

On the flip side, among those advisors not outsourcing, 56% said it was because their in-house investment management is a part of their value proposition.

It is important to remember that investment management alone is no longer a meaningful differentiator for RIAs.  While outsourcing is ultimately still the right answer, advisors need to be asking additional questions.  Instead of simply asking how I can improve my investment management, advisors should be asking how can I utilize an outsourcing solution to help me focus on client-facing activities and boost my Alpha through sophisticated investment tools and monitoring.

One thing we know for sure: outsourcing isn’t going anywhere.

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