Outsourcing key functions — including investment management, information technology and legal and compliance — is the route to greater growth, say advisory firms who outsource, according to a new study by Fidelity.
Nearly half (43%) of the advisers surveyed by Fidelity's clearing and custody arm said their firms currently leverage external consultants, third-party providers or individual specialists for select business functions. The advisers said that successful outsourcing allows them to focus on deepening client relationships and providing a "seamless" experience for clients.
The top functions that firms outsource are IT/technology (48%), investment management and portfolio construction (40%), and legal and compliance (37%).
The research found that advisers who outsourced two or three of the top outsourced functions were more likely to report higher client growth in the past year (81% vs. 71%), as well AUM growth (95% vs. 89%). Outsourcing also allowed advisers to manage more assets — $145 million, on average, at firms that outsourced several functions, versus $110 million at firms that didn't. Outsourcing also resulted in greater adviser compensation ($365,000 vs. $335,000). In fact, 43% of those surveyed agreed that outsourcing is essential to achieving scale in growing a firm or practice.
The No. 1 reason that advisers and firms specifically chose to outsource investment management was to create more value for clients (49%).
"Outsourcing helps free up time and mindshare," said Todd Roadman, a senior vice president at Fidelity Clearing & Custody Solutions. "Advisers 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."