Outsourcing Investment Management For Financial Advisors

Posted: August 11, 2020

Stock trading computer screens

In our 10+ years of observing both best-in-class and average advisors, we’ve noticed that at first glance the two are quite similar. They both clock long hours, are active in their communities, and have strong personal and professional networks.

But, when you take a closer look, we think top financial advisors focus their time on the activities that add the most value to their business. As a result, this leads to better performing businesses generating higher margins and lower attrition.

To be clear, I am not suggesting that I think elite advisors are better at ADDING to their plate value-rich activities intended to provide superior client service and attract new business. No. Rather than try to carry the world on their shoulders, I think elite advisors evolve their practice so that they can focus ONLY on high-impact things, while outsourcing anything where they add the least value relative to the time commitment required.

Viewed through that lens, investment management quickly surfaces as an area ripe for outsourcing, as discussed in “The Elite Advisor Playbook.”

If you’re an advisor considering taking steps down this path — perhaps this was highlighted as an area of opportunity for you in the “Are You An Elite Advisor?” quiz — you’re in the right place.

Step 1: ‘Starting with the Man in the Mirror’

Outsourcing investment management activities — easier said than done, right?

We know this inherently, but it’s reinforced every time an advisor we speak with (is the new vernacular “Zoom with”?) responds to this suggestion by looking at their phone or watch to confirm it’s not April 1.

It’s understandable. Advisors historically have owned investment management for their clients. For many, that’s created a sense of attachment and pride.

But if you’re an advisor who wants to pivot from good to great, it’s worth spending time self-reflecting to get to the root of why you’re spending so much of your most precious resource (time) on investment management.

  • Do you feel you need to justify your fees to clients, and therefore need to do it all? (Is this you? Jump to the section titled, “The ‘Doing it All to Justify Fees’ Professional.”)
  • Have you been stock picking your whole career, and it’s something you’re comfortable with and feel an attachment to? (Is this you? Jump to the section titled, “The ‘Stock Picker and Always Have Been’ Advisor.”)
  • Have you decided you’re open to outsourcing but haven’t found the right partner? (Is this you? Jump to the section titled, “The ‘I Can’t Find the Right Partner’ Practitioner.”)

If any of these resonate with you, you’re in the right place. What follows is guidance for each scenario, providing ideas for HOW you can implement the framework outlined in “The Elite Advisor Playbook” with respect to investment management.

The ‘Doing it All to Justify Fees’ Professional

Fees. The big F-word in financial services these days. We get it. In a world constantly demanding that goods and services be provided cheaper and faster, any conversation about fees will be a lot more comfortable if the advisor can readily point to the high value of what clients receive in exchange.

Here’s the reality: For most things in life, consumers usually aren’t personally invested in the process so long as their goals and objectives are satisfied. When I dine out, I don’t involve myself in all the steps that lead to a filet mignon being set in front of me. To be satisfied, I simply need for it to arrive within a reasonable amount of time after I order, be cooked to the temperature I requested, and taste fantastic.

At the end of the day, are your clients asking you for a process, or are they paying for a well-prepared steak? I’d bet it’s the steak. Your clients have specific financial goals they want to accomplish. How they feel about your fees is correlated to your ability to deliver on those objectives.

Evaluate the added benefits for clients when you identify a client-focused partner

Now, imagine if in addition to delivering the steak to your client, you could present it beautifully plated with a baked potato and creamed spinach, accompanied by a glass of top-rated cabernet — all for the same fee level previously discussed. You’d probably impress them. They’d probably feel pretty good about the fee they paid you. And they’d probably be willing to tell their friends about you.

That’s what wealth management can look like when you find the right partner for the investment management piece. We think a good investment management partner should provide the:

  • Potato – pre-baked monthly talking points for you to use to explain to your clients the activities taking place in the portfolio
  • Vegetable accompaniment – ad hoc content and resources for you to share with clients and prospects on your website, by email, or on social media
  • Glass of wine – the opportunity for your clients to join virtual calls between you and the investment manager to ask questions directly

When you find a partner who’s a value-add extension of your team, clients benefit from your additional capacity to work with them in:

  • Developing their financial plans
  • Establishing clear goals and objectives
  • Executing those plans relentlessly
  • Nurturing the behaviors necessary for them to stay on track and maintain their focus even when market events challenge their persistence

The ‘Stock Picker and Always Have Been’ Advisor

If you’re an advisor who cut your teeth comparing P/E ratios, dividend yields, and cash flows, we acknowledge considering an outsourced investment manager is a difficult proposition. Stock picking likely feels as embedded in the fabric of your identity as your HP 12C calculator.

You’ve demonstrated your ability to be rational and disciplined about analysis and decision making in picking stocks, and you know there’s an opportunity cost associated with every trade.

It’s the same principle for your time as an advisor. If your day is dominated by trading, you can’t go above and beyond communicating with clients, share some of your perspectives on LinkedIn, invite a prospect for a round of golf, or spend more time with your family.

Consider a core/satellite approach

The last thing we want is for an advisor to change their story; it is precisely this story that resonates with clients (if it didn’t, the advisor wouldn’t have a practice!). If stock picking is your story, honestly, don’t stop. But weigh the potential benefits to your business if you implemented a hybrid approach vis-à-vis a core/satellite model.

A good partner can manage the core of your book of business for a competitive fee, while you add satellite positions in areas where your skill and expertise provide an opportunity to earn greater returns.

The result should be a lower-cost and less-volatile portfolio that is differentiated by your side of active management — which is your opportunity to shine by selecting outperformers. It will also increase your bandwidth for client service and business development activities.

The ‘I Can’t Find the Right Partner’ Practitioner

Sometimes advisors who find us say they’ve been wanting to outsource more of their investment activities for years. They recognize that the less time they spend managing investments, the more they gain for activities that can wow their clients and attract new business.

But, if you’re having trouble carving out time for the activities you want to be doing, chances are you’re also going to find it difficult to make time to research and meet with a series of investment managers. Let’s face it, it’s usually not a rousing process, especially considering how many times you end up stuck in presentations that feel prescribed and impersonal. It’s not exactly an energizing prospect; kind of like wishing your tooth to stop hurting, but not really wanting to sit through a dental procedure.

Define your needs, and be quicker to say “no” when those needs can’t be met

Your time is too valuable to sit through another presentation that doesn’t speak to your needs! And it takes time away from serving your clients and building your business.

First, you must be clear with yourself about what you want from an outsourced investment manager. What’s “need to have” and what’s “nice to have”?

Being clear about what you expect from a partner will help you more quickly evaluate which investment managers can’t satisfy your “need to have” criteria, as well as compare those that pass the first test against the “nice to have” list.

As you research and evaluate, we hope Blueprint Investment Partners will be on your short list. Our team has been providing outsourced investment management for 10+ years, and we build our systematic investing strategies with advisors and their end clients in mind. Additionally, our program for advisors supports with practice management by providing white-labeled portfolio updates and content you can share directly with clients, post on your website, and email to prospects. Please let us know if you’re interested in a conversation.


Regardless of the reason why you’re spending so much of your time on investment management activities, the data shows that you shouldn’t be the one managing assets.

According to a study from Cerulli Associates, a Boston-based research and consulting firm focused on asset management and distribution, only 7% of financial advisory practices are suited to do their own research and portfolio management. Yet, 62% perform these functions on behalf of their clients.

The most common reason cited by Cerulli for why advisors are ill-suited relates to practice size. Cerulli found that firms should have at least $250 million in discretionary AUM and an average account size greater than $2 million to justify managing the investing in-house.

While we don’t necessarily agree with the statistics, these findings are consistent with our own anecdotal evidence. We often encounter firms that hit major resistance around the $150-250 million AUM range, when they must retool their overall business and investment approach to grow further.

We prefer to reframe this concept to mean that just because you can effectively manage assets doesn’t mean you should. A good businessperson will evaluate the cost-benefit analysis of every process they undertake, and that applies to financial advisors providing investment management as well.

In two words: Opportunity cost.

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If you’d like to discuss how Blueprint Investment Partners may be able to help you grow and sustain your business through our investment and practice management services