Outsourcing is route to greater growth, Fidelity study finds

Information technology, investment management and legal/compliance are the top three outsourced functions

Feb 26, 2019 @ 1:30 pm

By InvestmentNews

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%).

(More: Complect wants to make outsourcing compliance easier and more affordable)

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%).

(More: 401(k) advisers should heed the legal aspects of outsourcing)

"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."


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