By Kevin Crowe
While predictions abound about when the economy will really begin to recover, advisers need to look at what they can do now to keep their businesses on track for long-term success. That means not leaving things to chance, but rather exploring the right formula to cut costs without destroying the capacity to grow.
Compounding these challenges are growing expectations among clients who demand more and better services as a weary uneasiness over the current economic climate lingers. One labor-intensive task that proves particularly challenging is portfolio management. A recent College for Financial Planning survey revealed an increase in comprehensive plans that employ tailored strategies, as it found that more than one third (36 percent) of advisers' clients are receiving comprehensive written plans. Another 46 percent receive modular plans, both written and unwritten. This increased level of customization can place an incredible burden on the adviser's time and resources.
According to Cerulli Associates, 75 percent of advisers polled stated that the influx of products has made portfolio construction more complex and time consuming. The knowledge required to include the proliferation of options becomes too great, making portfolio construction decreasingly productive-and even unrealistic-for the adviser to efficiently manage alone.
That's where outsourcing comes in. For many advisers who have had difficulty letting go of investment management because they believe it is core to their value proposition, outsourcing can provides some much-needed, quantifiable relief from external economic factors and time-consuming client pressures that impede business growth.
Eliminating the Invisible Effort
It's a fact: clients value face time and communication more than any aspect of their relationship with advisers. And at a time when client retention is so critical, advisers know they need to dedicate the lion's share of their time optimizing that value to clients. Yet, behind-the-scenes tasks like manager selection and portfolio rebalancing, regardless of how essential they are to clients' investment success, exhaust advisers' already packed schedules while providing little impact on the client relationship. If an adviser's currency is time, than the return on this investment is minimal at best.
In times of heightened volatility such as this, clients are nervously eyeing their portfolios, posing difficult and time-consuming questions about short-term performance. For the adviser trying to keep clients to a long-term strategy, this causes undue strain on the relationship and even more drain on the adviser's time.
Outsourcing's Three-fold Advantage
Outsourcing this aspect of the business, however, enables advisers to leverage three key advantages they can pass along to their clients:
- Depth of diversity. With access to a depth and breadth of fund and manager diversification that would be tough to accomplish independently, outsourcing can help mitigate risk of underperformance while avoiding difficult conversations about the performance of single investments.
- Prevailing over product proliferation. Persistent product proliferation will continue to challenge advisers' ability to stay ahead of investment trends. With added resources, however, advisers aren't left to scramble to understand every option on their own.
- Time to educate and advise. Proactive, clear communication is critical to easing clients' fears over market rumors they read and see everywhere from the news to their neighbors. Eliminating time-consuming tasks can free up more of the adviser's time to tend to client needs more effectively and allows advisers to focus on delivering value to their clients through their advice and counsel.
When client uncertainty and economic pressure are at its pinnacle, advisers need to do whatever it takes to maintain and grow their businesses. And that takes time and resources.
Outsourcing provides an effective way for advisers to expand their capacity and make the most of the efforts directed toward existing business growth. Simply put, it enables advisers to do more of what they do best, and more importantly-what clients value most.
Kevin Crowe is the leader of SEI's Advisor Network Solutions Team. For more than 15 years, the SEI Advisor Network has provided financial advisers with wealth management services through outsourced investment strategies, administration and technology platforms and practice management programs. This strategic business unit of SEI works with 6,000 advisers and has $26 billion assets under management (as of June 30, 2009).
1 College for Financial Planning, 2009 Survey of Trends in Financial Planning
2 Cerulli Associate, 2007 Cerulli Advisor Survey
Tools to Use
A full version of this article can be found in the 2009 Outsourcing Toolkit, which also includes a time assessment worksheet. Visit www.seianswers.com/outsourcing to receive the Toolkit, or call an experienced SEI practice consultant at (888-734-2679) to learn more.