Financial advisors who outsource some or all of their investment activities reap the benefits, according to a survey by Northern Trust.
Seventy percent of those who outsource investment management say their decision was greeted positively by clients and in most cases has led to business growth.
The vast majority of advisors, 92 percent, said their clients responded positively when they initially heard the firm had decided to outsource and 80 percent reported that they didn't lose any clients because of outsourcing.
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Fifty-seven percent of respondents said that outsourcing has been good for their business because it frees up more time to spend with clients, the report found.
This is the third time Northern Trust has conducted a study on financial advisors' use of investment outsourcing. The 2014 study was based on responses from nearly 200 financial advisors with assets under management ranging from under $50 million to more than $1 billion.
Of those who decided to outsource, 53 percent outsource using turnkey asset management programs and 68 percent say they partner with or outsource to multiple firms. Twenty-nine percent of those surveyed said they outsource all investment management activities and 57 percent said they outsource specific asset classes and strategies.
Advisors tend to outsource their back-office operations, investment manager research, product selection and portfolio monitoring.
Nearly half of respondents say they outsource more than half of their clients' assets and four out of 10 advisors say they outsource investment activities on all client accounts. Those who selectively outsource are more likely to outsource large accounts, new accounts and accounts employing more complex or alternative investment strategies.
According to Northern Trust, the primary reasons advisors decide to outsource have changed since the last survey in 2012. In 2014, access to alternative investment expertise, portfolio construction and portfolio monitoring were the main decision drivers. In 2012, the top three reasons were access to asset allocation models, access to managers we could not access on our own and potential to generate alpha through best investment ideas.
Of the advisors who do not outsource investment management, 65 percent say in-house management is central to their firm's value proposition to clients. They tend to spend a lot of time on investment manager research, portfolio construction and monitoring, working with technology and related activities.
Thirty-one percent of those who not outsource say solutions would need to be more affordable for them to consider the option, but one-third say their position on outsourcing won't change. The survey was conducted in November and December of 2013.
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