Advisers who outsource investment management make more money than those that don't: study

An examination of 8,000 advisers over a decade showed outsourcing can produce $1 million more revenue for firms

Oct 10, 2016 @ 1:31 pm

By Grete Suarez

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.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

How are broker-dealers helping 401(k) advisers adapt to a changing market?

Bryan Hodgens, co-head of LPL Financial's Retirement Partners group, says the industry is getting much better at connecting advisers to wealth management opportunities and helping scale their businesses.

Latest news & opinion

IBD report: Another impressive year

Despite a stock market decline, revenue is up. And the streak isn't expected to end anytime soon.

IBDs with the most CFPs

How many of the more than 83,000 certified financial planners are employed by the big independent broker-dealers?

InvestmentNews announces 2019 Innovation Awards winners

Sheryl Garrett is this year's InvestmentNews Icon.

Morgan Stanley rides wealth management train to solid first quarter

Chairman and CEO James Gorman expresses excitement about expanding into workplace plans with purchase of Solium.

Fate of New Jersey fiduciary standard could come down to politics, court

With strong support from N.J. Gov. Phil Murphy, the proposal has momentum out of the gate.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print