To benefit from outsourcing, advisers need to focus on what is, and isn't, core to their value

Many advisers are still doing tasks in-house that don't help to differentiate their firm

Sep 18, 2019 @ 4:59 pm

By Ryan W. Neal

Advisers are increasingly outsourcing parts of their business to focus on growth. But a new study from Vestwell, a digital platform that allows advisers to offer and administer retirement plans, suggests many aren't doing it with a strategic focus on the unique value they provide clients.

When Vestwell asked 420 retirement plan advisers to name the key factor that differentiates their practice from others, 75% named some form of relationship management, such as employee education or holistic wealth management.

To focus on those relationships, 70% of advisers said they outsource plan administration and 41% outsource data and reporting.

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Yet advisers continue doing a lot of tasks in-house that get in the way of their managing client relationships. Only 27% outsource fund management, and the numbers get smaller when it comes to outsourcing services like integrations, proposals and financial planning.

"Advisers are building their business, building their practices, but not sitting back and thinking about where they add the most value," said Vestwell CEO Aaron Schumm. "They are all talking scale, but don't have a clear strategy."

Outsourcing and automation can be great for taking back-office busy work off an adviser's plate, but without a plan in place, advisory firms could be challenged to prove how they are different from everyone else.

Advisers can differentiate themselves by using technology platforms that are highly configurable so that even if behind-the-scenes processes are standardized, the end client receives a unique financial plan, investment strategy and other services tailored to their needs, Mr. Schumm said.

For example, if an adviser specializes in retirement plans, insurance benefits and financial wellness, they should have a core technology system where they can seamlessly plug in solutions to offer them.

[More: The path to success? It's all about client relationships]

"Here's where a lot of it breaks down — not everyone on the legacy side of the business has built around being able to work with other providers," Mr. Schumm said.

Another way advisers can stand out from the crowd is by wrapping educational material into the investment advice they offer, suggested Michael Connor, executive director of global financial services at digital custodian DriveWealth. Or with new fractional share capabilities, advisers can offer strategies to mass affluent or even mass-market investors that previously were available only to the ultra-wealthy, such as direct indexing.

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"Things are going to start looking very similar to each other unless there is an element of the firm's DNA they can really emphasize," Mr. Connor said. "[Digital] tools make the advisers' practice essentially much more efficient and allow them to offer advantages that were harder to deliver 10 years ago."

Vestwell's study found many advisers still feel most of the services they provide clients are too important to outsource.

But to really get the benefits that outsourcing promises, advisers have to hone in on their core competencies while finding partners to handle tasks that aren't central to their business.

[More: Investment management outsourcing delivers greater client-service impact]

According to Mr. Schumm, this will ultimately enable to them to invest time and energy in the things that truly matter.


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