5 ways outsourcing portfolio management can grow your practice

By Dhaval Kapadia |  14-05-21 | 
 

Like most advisers, you may often find yourself pressed for time, with seemingly not enough hours in the day to effectively run your practice and position your business for growth. On average, globally, advisers report spending just 55.3% of their time on client-facing activities, with the rest divided between administrative activities, investment management, and training/ professional development, according to Cerulli Advisor Metrics.

But if you could choose, would you rather spend more time with clients, building stronger relationships and looking for opportunities to increase your assets under management? Some advisers globally are doing just that by 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.

Advisers may begin to realize five key benefits, when introducing a managed portfolios model into their practice.

1. It can help you solve capacity issues

Each client is unique—they have a different set of goals, timelines, family circumstances, and risk tolerance—there are so many possibilities, it can be difficult enough to create an individualized plan with the level of custom attention many of today’s investors expect. Then, factor in the additional time it takes to keep that plan current, evaluate securities, assess different fund managers and investment vehicles, reallocate and rebalance, and so on.

Many practices and networks globally have in-house specialists who take on some or all of the investment-management process, such as reviewing funds, maintaining a recommended funds list or designing model portfolios. But is this team cost-effective and scalable for your practice? Building your client base may mean expanding your staff, adding to fixed costs and training requirements.

Recommending third-party discretionary portfolio management may help allow you to overcome some of these capacity constraints and development expenses. You can concentrate on growing your business, knowing you can lean on your investment management provider to adapt to new or changing demands.

2. You gain access to knowledgeable and experienced investment professionals

Financial markets are increasingly complex, and the range of investment opportunities continues to grow. It can be a huge challenge to evaluate all of these and assess their suitability for your clients When returns from many asset classes are lower and volatility is higher, the responsibility of handling client portfolios becomes even more taxing.

In terms of business scalability and meeting the needs of a growing client base, some choose to hire an investment team, train them in their investment philosophy and process, and manage them. By recommending a discretionary investment manager, you can gain access to a readymade multi-disciplinary team with a proven track-record—without the direct development expenses and demands.

Your clients have the opportunity to gain access to experienced investment professionals trading and rebalancing their accounts based off a stated investment objective and using a consistent methodology. You can also benefit from the provider’s experience in delivering support for you, including due diligence, administration, and reporting.

The decision to use professional portfolio management services really comes down to economies of scale and capacity.

3. Using professional portfolio management services can give you more time for client interaction

Not using professional portfolio management services may result in a large part of your work week being spent in hands-on portfolio tracking. That’s time spent in front of a computer instead of talking with clients about their different goals, changing financial circumstances, and thoughts on market conditions, suitability, and risk.

Reducing the time you spend on investment decisions and portfolio construction can give you more time to spend elsewhere. This can mean opportunities to work on other aspects of a client’s financial plan, the possibility to deliver more personalized service or simply the capacity to take on more clients.

Using professional portfolio management services can help give you more time to provide a level of personalized service and attention that may potentially add greater value over time—and that can often translate to a solid competitive advantage.

4. You can act in your clients’ best interests—and they recognize it

By using professional portfolio management services, you and your clients can still choose the most appropriate investment strategy, but the focus shifts to what’s possible with your financial plan rather than discussing day-to-day performance of individual securities and funds.

Some advisers may think that using professional portfolio management services means giving up control. However, with discretionary portfolio management services, you have transparency in investment objectives and how the investment team is working to meet them.

In addition, you can still maintain planning flexibility, choosing to invest in strategies as you and your clients see fit. With regular communication from a third-party portfolio manager who provides managed portfolios, you and your clients can stay informed, so you can collaborate and make strategic adjustments as needed, just as you would have done before.

And with formal governance, documentation, and strategy performance reviews, an investment team can help you meet fiduciary responsibilities.

5. You may move toward becoming a more holistic wealth manager

Using professional portfolio management services may allow you to adopt a more neutral position. You will have the opportunity to sit on the same side of the table as the client and evaluate strategies and performance in a purely objective capacity.When you use professional portfolio management services, you can focus your attention on helping your clients set realistic goals, while showing ways to achieve them. Using a third party to help manage one area of clients’ finances allows you to emphasis the importance of other areas, such as how to consider spending and saving money. These are factors that can aid in making a difference in financial health.

Weigh the Options

Using professional portfolio management services to manage your clients’ portfolios is a big decision. However, it can give you more time for client-facing activities, to tap into the knowledge and experience of a third-party provider, and can potentially help enhance your position as the client’s overall wealth manager—all of which can help your business.

Learn about our Managed Portfolios for advisers here. Alternatively, you can reach out to pmsindiasales@morningstar.com to know further about our offering.

Request for a demo here.

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