Advisers who outsource investment management could bring in $1 million more in revenue over a decade than those that manage their clients' portfolios in-house.
That's the conclusion of a new study of 8,000 advisers by SEI Advisor Network and FP Transitions. The study collected data over the last 10 years and analyzed the operations of firms that handle investment management in-house and those that outsource those duties to third parties.
The effects of each business model boil down to where advisers dedicate their resources and time, according to the study. Firms that outsource investment management spend on average more than double the amount on advertising and marketing than their counterparts that do their own investment management. Outsourcers also spend 12% of their time meeting prospects and 37% meeting existing clients, compared with 6% and 20%, respectively, for those doing their own investment management.
“When we first started looking at the data, a lot of the data looks similar," said Brad Bueermann, chief executive of FP Transitions "Where [the advisers] deviate is where they spend their time.”
Mr. Bueermann said the quality of investment management in-house or at a third-party looks similar. “In terms of growth in the portfolio, we weren't seeing any real discernible differences," he said.
“What ... excited [us about] this research is that it fundamentally showed that if you do outsource your investment management, the value of your firm will increase more than if you don't,” said Raef Lee, managing director and head of new services and strategic partnerships at SEI Advisor Network.
For example, the study noted that advisers who outsource investment management, on average, add an additional $14.5 million to their assets annually. That is twice the amount in-house investment managers have added to their asset growth.
Outsourcers added 14 new clients each year compared with only four new clients with investment managers, the study said.
Furthermore, over the last decade, on average, a client-focused adviser's revenue from new and existing clients increased by $1.9 million compared with $815,902 at an investment manager, the study found.
In the end, the ideal business model all depends on the firm.
“All three models [client-focused, investment-focused, and a hybrid of client and investment focuses] can be profitable and effective, it depends on the build and makeup and how the firm wants to differentiate,” Mr. Lee said.