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

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 03, 2016
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.

Latest News

Morningstar forges fintech partnership with SS&C
Morningstar forges fintech partnership with SS&C

The alliance will give Black Diamond users the first chance to use a newly launched advisory suite as Morningstar shutters a legacy advisor platform.

Passive pressures will drive continued mutual fund consolidation into 2030, PWC says
Passive pressures will drive continued mutual fund consolidation into 2030, PWC says

A continuing shift to low fees, growing dominance of mega-managers, and the clamor for product innovation are set to reshape the landscape.

Amid festering trade tensions, Grantham's GMO launches China-dodging ETF
Amid festering trade tensions, Grantham's GMO launches China-dodging ETF

Notwithstanding a recent tech-driven rebound in Chinese markets, five- and 10-year lookbacks suggest dropping the emerging-market giant is still the winning strategy.

Finra sanctions smoothie-throwing broker over alleged cash reporting failures
Finra sanctions smoothie-throwing broker over alleged cash reporting failures

But the Finra panel's decision against James Iannazzo was not unanimous.

Student debt has a chilling effect on employees' retirement planning
Student debt has a chilling effect on employees' retirement planning

A new study highlights how debt-saddled public and private workers are forced to focus on shorter-term investments and immediate financial concerns.

SPONSORED Record growth: Interval funds emerge as key players in alternative investments

Blue Vault Alts Summit highlights the role of liquidity-focused funds in reshaping advisor strategies

SPONSORED Taylor Matthews on what's behind Farther's rapid growth

From 'no clients' to reshaping wealth management, Farther blends tech and trust to deliver family-office experience at scale.