Financial Advisors’ Front-, Middle-, and Back-Office Outsourcing

In our most recent Impact of Outsourcing study, we asked over 750 financial advisors to report on why, what, and how they outsource elements of their business. Ultimately, we found that advisors are outsourcing a wide array of business functions ranging from front office to back:

• 59 percent of financial advisors outsource their legal and compliance work
• 55 percent of advisors outsource their technology
• 38 percent of advisors outsource their investment performance reporting
• 27 percent of advisors outsource their marketing

The most interesting part about this data? This only accounts for financial advisors who do not outsource their investment management.

When we think about these business areas, they make sense to outsource. Legal and compliance not only requires significant expertise, but it also carries significant risk. Technology requires specialized training to implement in an effective way, yet no modern business can survive without its tech stack; thus, advisors outsource this as well. Investment performance reporting is tedious and easy to automate with the right technology. It gets outsourced to companies that provide specialized solutions. Marketing work is time-consuming and requires consistent effort—again, advisors outsource this work to experts.

Each of these business functions are outsourced because they take too much time, don’t generate revenue, and are better left to dedicated experts. For some reason, advisors just aren’t applying the same thinking to investment management.

Here's Why That's a Mistake

Some advisors believe that the way they manage their clients’ investments is their “secret sauce.” They feel that the way they select strategies, research investments, and build portfolios is something that adds value to their practice and differentiates it in the eyes of their clients.

However, when we think about investment management from a clients’ perspective, this idea quickly evaporates. To clients, the most value they get out of the experience investing with a financial advisor is one-on-one time spent with that advisor. 

Clients work with financial advisors in order to grow and protect their financial wellbeing, achieve goals, and do it all with an expert guide at their side. Investment management is just a tool to accomplish these things. So long as their portfolio is working towards their goals, clients don’t particularly care (or even realize) whether their advisor is in the nitty-gritty of their portfolio or not.

As a result, insourced investment management generally doesn’t add value to client relationships. What it does do, however, is take up a huge portion of an advisor’s time. In fact, our data shows that advisors who did not outsource spent another 8.5 hours per week on investment management.

And perhaps most significantly, keeping investment management in-house increases an advisor’s workload across the board, often forcing them to outsource more to other vendors.

Consider the fact that:

• Advisors that keep investment management in-house face greater legal risk—often requiring that advisor to outsource their compliance work.
• Many investment management third-parties provide technology solutions that support data visualization, client communication, and financial planning—reducing an advisor’s need to source these solutions themselves.
• By outsourcing investment management, advisors are also outsourcing investment performance reporting to the same vendor.
• Outsourcing investment management provides more time to focus on marketing activities—and some investment management firms also provide marketing support, like AssetMark’s Marketing Advantage program.

What Really Defines a Successful Outsourcing Strategy

Ultimately, financial advisors need to ask themselves two questions in order to find a front-, middle- and back-office outsourcing strategy that works best for them:

1. What business functions take up the most time and create the least value for my clients?
2. Who should I outsource those functions to?

For most practices, the answer to the first question will be investment management. Our data shows that 83 percent of advisors who outsource investment management found that their client relationships grew stronger after outsourcing.

As for who their ideal provider is, that depends on the individual advisor and their business’s unique needs. Many advisors find that AssetMark is right for them. In fact, our Impact of Outsourcing study compares outcomes for advisors who outsourced investment management with AssetMark, outsourced to another organization, or chose not to outsource at all. Why not review the data and find out how outsourcing investment management could impact your practice?