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Why More Advisors Are Considering Outsourcing Investment Management

By Russ Alan Prince, the Executive Director of Private Wealth magazine

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Barrett Ayers is president of Adhesion Wealth, a registered investment advisor (RIA) and financial technology firm that specializes in managed account solutions. Adhesion Wealth’s advanced technology provides RIAs with the tools to tackle complex wealth management operational challenges through the platform. Barrett supports RIAs in utilizing model portfolios and outsourcing 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 business helps advisors solve.

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

Adhesion works with advisors to provide portfolio construction tools that help them work more efficiently. The Unified Managed Account platform is designed for growth-minded advisors seeking to offer sophisticated investment management, including smaller RIAs that are trying to differentiate themselves and their services. Adhesion believes that giving advisors access to simplified asset allocation, research, best-of-breed managers, risk analytics, rebalancing, and other investment management tools positions them to enhance service and grow AUM. Clients also benefit in the performance arena; in our survey, more than one-third of advisors cited better overall investment performance as a primary benefit of outsourcing.

A key way we help advisors tackle the challenges of running a business and working with clients is through outsourced 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 exchange can communicate their investing criteria with managers and receive accurate, up-to-date reports on performance. Using solutions that simplify portfolio construction and gain access to new asset classes and top tier-managers, advisors can focus on client management and practice development.

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

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

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

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

Outsourcing can also be a critical strategy for breakaway advisors looking to attract new clients. According to Cerulli’s U.S. RIA Marketplace report, many RIAs launch without adequate external support, lose the operational capabilities of a broker/dealer, and need to build new processes to internalize the missing pieces. Third-party players can help alleviate the tension RIAs feel between “business owner” and “advisor,” and how they face challenges with value differentiation, profit margin compression, and competition for talent.

Lastly, while many advisors may be concerned with how outsourcing will increase costs, Adhesion’s surveys with RIAs have found that operating costs can actually decrease through outsourcing investment management. More than half of advisors who currently outsource their investment management report their operating costs have declined since they began outsourcing, with 40% seeing declines in costs of 5% or more, our research shows.

Prince: How do advisors determine which type of outsourcing model makes the most sense for their business?

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

For advisors to determine which outsourcing areas can benefit clients and their business—for example, whether it’s portfolio management support or real-time performance reporting—they need to consider which areas will help them deepen the relationships most, and what the needs are of clients they’re looking to take on. Advisors need to consider what will benefit the end investor and contribute to their firm’s growth strategy.

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

An important area advisors may differ on with approaching outsourcing is the degree of control they want with investment management. An advisor could partner with a managed account/Unified Managed Account platform like ours for direction on selecting managers and funds. Advisors who want a higher degree of control in investment management can pursue models or options that enable them to play a role in investment personalization. Unified Managed Accounts enable the delivery of customizable investment solutions for investment clients and the economics are a potential win-win. Unified Managed Account can offer a flexible account structure to create the right portfolio solution for each client, in a highly scalable way.

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Important Information

This is for informational purposes only, is not a solicitation, and should not be considered investment, legal or tax advice. The information has been drawn from sources believed to be reliable, but its accuracy is not guaranteed and is subject to change.

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C24-20942 | 02/2024 | EXP 2-28-2026