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Five Outsourced Investment Management Myths Debunked

Investment management outsourcing can be a sensitive topic among financial advisors. While some consider it a risk, others consider it a beneficial strategy to enhance their business. Regardless of where you stand, it’s important for you to clearly understand what outsourcing involves, what the myths and misconceptions are, and what the real benefits are. This blog post will look at some of the most common myths around outsourced investment management and serve as a guide to help you cut through the noise. 

Debunking Outsourced Investment Management Myths

As you consider the pros and cons of outsourcing investment management, a few concerns are probably bubbling to the surface. The first of these is likely cost – outsourcing isn’t free, and advisors need to be sure the benefits justify the expense. You may also worry about losing some control if you outsource. Will the firm handling investments stay true to your long-term vision for your clients’ portfolios? 

Finally, many advisors hesitate to outsource investment management because they fear it could damage their client relationships. After all, if you hand over control of investments to a third party, you might worry that clients will wonder what you’re still bringing to the table. 

While we understand that these are valid concerns, we also want to look at some data from a recent report by our friends at AssetMark to determine how outsourcing actually plays out in the marketplace.

Myth #1: Outsourcing is Expensive

Advisors should be aware of several myths and misconceptions associated with investment management outsourcing. The first myth is that outsourcing is expensive. 

According to AssetMark’s report, a staggering 83% of advisors experienced a boost in personal income by outsourcing. The advantages of outsourcing in the financial realm are vast, as evidenced by 91% of advisors witnessing growth in total assets, 84% observing an increase in business valuation, and 79% benefiting from reduced operating costs. 

These factors directly contribute to a firm’s overall profitability. Furthermore, when surveyed, most advisors who outsourced expressed satisfaction with the cost, finding it reasonable or even lower than anticipated. 

Myth #2: You give up control when you outsource

The second myth is that outsourcing means giving up control. However, when we look at the data, we see that outsourcing can allow for greater oversight and better risk management. Outsourced providers can offer real-time monitoring and performance reporting, providing greater transparency and taking on the burden of compliance and regulatory requirements. 

Outsourcing firms employ a systematic and hands-on approach to investment research, trading, and monitoring. When you rely on an outsourced partner to handle those tasks, you can dedicate more time to guiding client investment decisions and ensuring a seamless experience.

Myth #3: Outsourcing means you can’t customize your client’s investments

The third myth is that outsourcing removes an advisor’s ability to customize investments. According to the data, most advisors (98%) provide superior investment solutions because they outsource. The survey pinpointed several key enhancements, including improved portfolio oversight, rebalancing, and divesting underperforming products. It expanded access to a broader range of investment options.

Advisors surveyed reported achieving the following: 

  • Greater oversight of portfolios (80%)
  • Access to a broader range of investment products (56%)
  • Improved investment performance for clients (48%) 
  • New products they weren’t previously familiar with (41%) 
  • Access to new categories of products (33%)

Outsourcing can open up additional ways to customize your client’s investments and meet their exact needs while maintaining your investment philosophy. 

Myth #4: Outsourcing erodes your value proposition

The fourth myth is that outsourcing erodes your value proposition. However, outsourcing can enhance an advisor’s value and expertise. Advisors can leverage the expertise of outsourced providers to create better investment solutions, improve their processes, and deliver more meaningful insights to clients.

By outsourcing your investment management tasks to a trusted third party, you can free up more time to focus on what truly matters – offering personalized advice and guidance to your clients. With more time to dive deeper into your client’s financial goals and objectives, you can create investment strategies that perfectly align with their needs. 

The data shows many positive client relationship benefits, such as: 

  • stronger client relationships (83%)
  • increased client retention (82%) 
  • acquiring new/higher-quality clients (74%) 
  • increased client referrals (67%)

Myth #5: Outsourcing is difficult 

The fifth myth is that outsourcing is challenging to implement. Many providers offer streamlined onboarding and integration support to simplify the process for advisors. Outsourcing can be a smooth transition when you partner with the right provider.

Advisors often choose to outsource to delegate various back-office responsibilities such as technology, investment management and monitoring, administration, and more. Outsourcing providers typically offer a range of support to help advisors quickly and seamlessly establish their operations. If you partner with the right provider, you should have your team of professionals to handle the day-to-day functions of your practice. 

Financial advisors who allocate at least half of their AUM to outsourcing reclaim an average of 8 hours per week, while advisors who outsource less than half of their AUM save only five or six hours. This data highlights the significance of outsourcing – you can free up one day a week to devote to your clients, business, and family. 

In conclusion, investment management outsourcing can be a viable strategy for financial advisors in today’s complex and competitive market. Whether you’re seeking increased efficiency, cost savings, or greater expertise, outsourcing can effectively achieve your business objectives, surpass your client’s goals, and scale your business.

If you’d like to see how the team at Sowell Management can help take items off your plate, increase revenue, and better serve your clients – schedule a call today

Sources: The Impact of Outsourcing study was conducted in partnership with 8 Acre Perspective, an independent research firm and represents the second installment of original research conducted by AssetMark in 2019. 757 financial advisors participated in the study, completing an online survey between September and October 2021. Participants included 581 advisors who outsource investment management and 176 who do not. All participating advisors are owners/principals/partners at firms in the independent broker-dealer, insurance, and independent RIA channels.

All participants have the following characteristics:

• 7+ years tenure as a financial advisor

• Up to $500 million in total assets under management

• At least 30% of total assets under management is fee-based business

• At least 50% of total assets under management is from individual retail investors

Those who outsource investment management have at least 20% of their assets outsourced to a third party (broker-dealer, model provider, and/or TAMP).


BLOG DISCLOSURE: This website blog is published and provided for informational and entertainment purposes only.  The information in the blog constitutes the content creator or guest blogger’s own and it should not be regarded as a description of services provided by Sowell Management. The opinions expressed in the blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry.  The views reflected in the commentary are subject to change at any time without notice.

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