Outsourcing: the secret weapon of modern wealth advisors

The wealth management industry has experienced significant growth in recent years, with registered investment advisors (RIAs) expanding to $128 trillion in assets and seeing a 24.7% compound annual growth rate in 2021. However, this growth has also increased the complexity of managing financial assets. One of the critical decisions facing RIAs today is whether to insource or outsource various aspects of their operations to scale and grow. Here, we explore the pros of outsourcing in wealth management.

Time as a precious commodity: outsourcing empowers advisors

One of the most critical elements of the client-advisor relationship is time. Clients value frequent communication and information sharing with their advisors. However, administrative duties often consume a significant portion of advisors’ time, limiting their ability to focus on what they do best – advising clients.
Advisors deal with more complex portfolios and new tax implications in the modern investment landscape. Outsourcing tasks such as research, paperwork, and onboarding through model portfolio partnerships can free up advisors to personalize investment strategies for each client. The choice comes down to either expanding in-house staff or outsourcing to partners specializing in these tasks.

Outsourcing allows advisors to personalize services while streamlining the entire process through model portfolio platforms, making it more efficient and effective.

Cost-effective efficiency: outsourcing provides economic advantages

Outsourcing can significantly reduce operational costs for advisory firms. A study by Schroeder’s found that 58% of advisors believe outsourcing reduces operational expenses. Centralizing processes like running reports, rebalancing portfolios, and generating invoices on a single platform eliminates the need for additional personnel and the technology to support them.

Centralized platforms also reduce the risk of errors related to manual data entry and system discrepancies. Smoother trading and transitions save time and cost, enabling advisors and their staff to focus on serving existing clients and acquiring new ones.

By outsourcing lower-value tasks through model-based platforms, firms can prioritize high-value activities, facilitating scalability as the wealth management industry grows and competition intensifies. Clients’ increasing demands can be met by outsourcing crucial tasks that do not require direct advisor involvement.

Adapting to change: outsourcing helps facilitate modern tax planning and personalization

Client portfolios have evolved significantly, with more alternative investments becoming available. Tax planning has become more complex, transforming into a specialized wealth management discipline. Advisors must tailor their approach to manage portfolios in a tax-sensitive way while meeting their clients’ sophisticated needs.

Centralized investment management platforms with advanced rebalancing and trading enable advisors to leverage advanced technology for customized portfolios. These solutions help manage tax households, identify tax-loss harvesting opportunities, and create tax-efficient portfolios.

Outsourcing model portfolio solutions do not replace the advisor’s role but equip them with tailored information and technology to make better, faster, and more customized client plans.

In-house or outsourced: finding the right fit for your advisory firm

While outsourcing offers numerous advantages, some firms prefer to keep processes in-house. Advanced portfolio management solutions for rebalancing and trading can enhance operational efficiency. In-house solutions allow greater control over portfolios, net exposure, and household management.

Being able to tell clients that all assets are managed in-house can be a compelling selling point, emphasizing a hands-on approach. Technology in the form of in-house solutions can help advisors make decisions more efficiently, freeing time to spend with clients. However, in-house solutions may offer different analytical capabilities than outsourced models but can be suitable for smaller firms or advisors looking to get started with model portfolios.

Strategic choices for advisor success: embracing model portfolios and outsourcing

Whether through in-house or outsourced solutions, model portfolios have become essential tools for optimizing advisors’ performance. The complexity of the modern investing world requires advisors to focus on the most critical aspects of their role, such as educating clients and providing guidance. Outsourcing allows advisors to delegate time-consuming tasks to technology and specialized partners, enabling them to concentrate on building stronger client relationships. Ultimately, the choice between insourcing and outsourcing depends on the firm’s goals and capacity to meet the demands of a dynamic wealth management industry and changing client demographics, behaviors, and preferences.

As the industry evolves, advisors must explore the benefits of outsourcing and leverage technology to provide their clients with more personalized and efficient services. intelliflo offers advanced in-house or outsourced financial advice technology solutions for businesses of all sizes. Book a personalized demo to discover how we can help.