Preparing your practice for portfolio management services

By Morningstar |  13-05-19 | 

Some advisers globally are turning over the labor-intensive tasks of investment management— everything from establishing an asset allocation strategy and implementing portfolio decisions to providing risk management and ongoing oversight—to a third-party investment management firm. Here are five ways outsourcing portfolio management can benefit you.

If you’re contemplating making the switch to using professional portfolio management services, consider these factors before you take the first steps.

Size up your services

Take a high-level look at your practice to see where you excel—and where you struggle. How could this improve if you spent less time handling investments and more time for prospecting and building deep client relationships?

Evaluate where your competitive advantage truly lies—and delegate everywhere else.

Do your clients work with you because of your investing acumen or does your value come from your knowledge of their financial goals? Just as you’d refer clients with tax or legal issues to a CA or lawyer, smart delegation can make your practice more nimble, because you’re focusing on services in which you specialize.

Build a practice with lasting recurring value

Basic, off-the-shelf portfolios are a dime a dozen. An adviser’s true value usually stems from your client relationships—understanding their appetites for risk, their tendency to chase performance, and the limits of their investment knowledge. You can help provide the guidance, discipline, and experience that they may lack, and this can be worth just as much as the actual investment decisions.

Cultivate deeper bonds: educate and communicate

To help underline your value, demonstrate it. Reach out to your clients to help them truly connect the dots between their investments and their goals. Strive to be the bridge between performance spreadsheets and their long-term aspirations.

Pick the right providers

Any provider you work with should offer options that work for your clients’ objectives, proven experience in asset allocation and risk management, and communications and support that keep you regularly apprised of portfolio changes and client performance, so neither you nor your clients are ever left in the dark.

Consider transitioning slowly

While opting for professional portfolio management services can be a prudent decision for some advisers, it shouldn’t be a rash one. Take your time! This should be a long-term decision to help achieve long-term goals, so you owe it to your clients and your practice to carefully weigh the move and take action only when it’s right for everyone.

Redefining success with clients

You’ll likely have plenty of client discussions if you choose to opt for professional portfolio management services, some of which may be focused on how you provide value. When thinking about your discussions with clients, here are a few points you may want to consider:

  • There’s so much to working with a financial adviser. Some investors may measure value by their advisers’ performance relative to some benchmark, like the S&P BSE Sensex or S&P BSE 500. However, that can potentially distract from the overall financial plan that they’ve created and may lead to short-sighted decisions. By using professional portfolio management services, advisers can potentially provide additional value by finding more time to focus on delivering holistic advice based on longer-term goals and objectives that the client lays out.
  • Most advisers monitor clients’ financial plans and adjust them to changing circumstances on an ongoing basis. There are risks that clients are willing to take and those they may need to take as part of a holistic plan, given their long-term financial goals. By using professional portfolio management services, advisers may find time for more regular check-ins and personal attention to help ensure clients are comfortable with the current risk level in their investments and that they are still on track to meet their financial goals.
  • Each client’s benchmark is highly personal. Clients may know what they want to achieve as investors, and if they focus too closely on their own returns relative to an index or some other pool of securities, they may not take the whole picture into account.
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