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Is It Time to Outsource Your Firm’s Investment Management Tasks?

Financial Advisor IQ

By Grace Williams | April 6, 2018

Industry Press

In the landscape of investment advising, First Ascent Asset Management says the time for advisors to consider outsourcing some of their services is now.

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At face value, the word “outsource” probably conjures up some pretty intense stigmas. Perhaps it drudges up agonizing phone calls that require multiple steps alongside copious amounts of muzak before speaking with an actual human being. Or maybe it represents entire departments shuttering and leaving disgruntled, unemployed folks in their wake. Whatever the term stirs up, in the landscape of investment advising, First Ascent Asset Management says the time for advisors to consider outsourcing some of their services is now.

According to First Ascent Asset Management, in 2014, 25-50% of advisors outsourced some or all of their investment management functions while 92% of clients reported having a positive reaction to outsourced investment management. Meanwhile, assets managed by turnkey asset management programs (TAMPs) recently reached $1.75 trillion.

First Ascent Asset Management says anyone considering outsourcing should ask themselves three simple questions: What is your passion? Where do your talents lie? What are your goals?

Benefits of outsourcing include efficiency in automation and the ability to build and manage a successful portfolio, according to Scott MacKillop, founder and CEO of Denver-based First Ascent Asset Management. This lets advisors concentrate on other things like servicing existing clients and drumming up new business.

Citing expansion into financial planning, client profiling, and behavioral coaching, he says, “advisors are starting to realize there are more important functions for them than doing investment management.”

In that same arena, outsourcing enables advisors to delegate. Jeff de Valdivia, founder of Fairfield, Conn.-based Fleurus Investment Advisory, which currently has $13.5 million in assets under management, says he manages client accounts and decides how to allocate their financial assets. But, he has wiggle room after that.

“In the choice of investments that I make for my clients, I may use a mutual fund here and there and therefore use someone else’s investment expertise (that of the money manager running the fund in this case) to complement my own,” says de Valdivia. “Does that mean that I outsource? Perhaps.”

Not everyone has a say in the matter, though. Some advisors, like Harvey Siegel, a senior financial advisor, find themselves living the adage “adapt or perish.” About a year and a half ago, his firm merged into one that outsources some of its services. All told, however, Siegel says advisors that worry about staying relevant or becoming replaceable should put any gnawing feelings into their proper place.

An advisor managing individual, qualified and taxable accounts can easily outsource, but, according to Siegel, it becomes more complicated after that. “Once you’re managing a household with a mix of qualified and after-tax accounts, it generally becomes unsuitable for outsourcing,” he says. Siegel’s Lenox, Mass., firm is part of Apella Capital, LLC, which is headquartered in Glastonbury, Conn. and has assets under management of $750 million.

MacKillop agrees there are things only human interaction can properly execute. With some of the more robo-esque tasks outsourced to technology, “Advisors are more focused on trying to figure out how to establish value and do things that can’t be automated as easily,” he says.

Having a realistic gut check about where your talents lie will also help determine what to outsource and what to do yourself. Just ask Holderness, N.H.-based Bob Maloney of Squam Lakes Financial Advisors. Maloney’s firm does not manage any of its clients’ assets. Instead, that task is outsourced to organizations he has vetted and trusts. An uncertainty about the unknown after recommending stocks to clients gave him an “aha” moment, and with that came an understanding of his talents.

“I do not have the skills to pick and choose stocks and bonds,” says Maloney, whose clients have between $25 and $40 million in assets. “That puts me into an area that my education and experience haven’t taken me. I don’t have those skills.”

Maloney’s decision supports a similar thought that de Valdivia shares. “Unless a financial advisor considers himself/herself an expert in all things related to money management, he/she will have, at some point in the investment management process, to call on outside advice directly or indirectly,” he says. “In that sense, there is always some form of outsourcing going on.”

And because no line of work is complete without a little passion thrown in, MacKillop agrees that while outsourcing is helpful and a good fit for many advisors, it isn’t the be-all and end-all for everyone, including self-professed “investment nerds.”

“We want everyone to outsource, but there are advisors for whom that’s not a very good idea,” he says. “If they got into it because they love doing investments and that’s why they like it, outsourcing would take the joy and pleasure out of life.”