(Business Wire) -- Nearly half (43%) of advisors say their firms currently leverage external consultants, third-party providers or individual specialists for select business functions, according to a new study by Fidelity Clearing & Custody Solutions, the division of Fidelity Investments that provides clearing and custody to RIAs, broker-dealer firms, family offices, retirement recordkeepers and banks.
The No. 1 reason advisors and firms chose to outsource investment management specifically was to create more value for clients (49 percent).
Advisors feel that successful outsourcing of functions like investment management, legal and compliance, and marketing/communications allowed them to focus on deepening client relationships. Outsourcing of investment management also allowed for a “seamless” experience for clients.
The research uncovered that outsourcing appears to be good for business, too.
Advisors that outsourced two or three of the top three outsourced functions reported experiencing higher growth in the number of clients in the past year (81 percent vs. 71 percent) and also reported experiencing growth in AUM in the past year more often (95 percent vs. 89 percent).
At the advisor and individual team level, outsourcing allowed advisors to manage more assets ($145M vs. $110M) and resulted in greater compensation ($365K vs. $335K). In fact, 43 percent agreed that outsourcing is essential to achieving scale in growing a firm or practice2.
“We believe the future’s most successful financial advisors won’t allocate their time and energy the same way they do today,” said Todd Roadman, senior vice president for Fidelity Clearing & Custody Solutions.
“We’re asking wealth management firms to take a hard look at their firm’s functions and ask themselves, ‘Is this driving value?’ Advisors shouldn’t be afraid to consider letting go of the areas outside their core competencies.
“Outsourcing helps free up time and mindshare. Advisors are able to focus on building deeper relationships with their clients by focusing on what matters most to investors which, increasingly, is planning-centric and goals-based financial advice,” continued Roadman.
The top functions that firms outsource are IT/technology (48 percent), investment management and portfolio construction (40 percent), and legal and compliance (37 percent).
The top three reasons identified for hiring specialists were optimizing overall firm efficiency and productivity (70 percent), filling a gap in internal expertise in the outsourced area (62 percent), and saving time (60 percent).
Advisors also indicated it allowed more time to dedicate to client service (53 percent) and enabled firms to create more value for their clients (49 percent).
Of the firms and advisors who hired specialists, 84 percent indicated they had a successful experience. In our study, the top reasons behind the success were:
• Helped save time – 77 percent
• Vendor had qualified expertise – 70 percent
• Helped increasing productivity – 66 percent
• Helped optimize efficiency – 57 percent
• Allowed firm to focus on deepening client relationships – 53 percent
For more on outsourcing and how it can impact firm performance, visit Fidelity’s website.
