The Case For Outsourcing in Advisor Businesses

Why doing it alone may be impeding your practice’s growth

A few months ago, an advisor client came to me with a dilemma.  He had built an independent advisor practice by focusing on fee-based business.  He worked with clients to develop a detailed understanding of their investment goals, risk tolerance and return needs, then placed them into model portfolios which he managed using off-the-rack trading and rebalancing software from a major custodian.  

Still even though the models seemed to work, the advisor had doubts about them.  There was no mechanism for making sure new monies were invested into the model portfolios; instead the advisor’s assistant deposited checks with the custodian, and it was up to the advisor to remember to direct them into the proper investments.  In addition, there was no documented process for making investment decisions.  The advisor worried about what would happen if a client ever asked to justify the holdings in his portfolio or the trades he’d made on the client’s behalf.   And just as important, administering the accounts was time consuming.  The advisor’s business wasn’t growing as fast as it might have, because he was spending too much time on the details – opening and closing accounts, investing new money and selling positions to meet withdrawal requests, rebalancing, reporting, researching investments and portfolio managers and assessing performance.  

That advisor eventually decided to outsource investment management on his clients’ accounts, so that he could focus more on developing relationships, winning new business and gaining referrals.   And as he let go of the administrative burden, his business started to grow again.

For small- and medium-sized advisors with assets under management of $50 to $100 million the decision to outsource all or part of their business infrastructure is an individual one.  Advisors at that level of income may not have the resources to hire in-house expertise in compliance, investment management, operations and marketing.  Yet they may not have the time or specialized knowledge to handle all these responsibilities themselves.  Outsourcing can be a cost-efficient way to fill gaps in an advisor’s internal capabilities and allow him or her to concentrate on expanding the business.  

The hidden cost of doing it yourself

Advisors often forget that going it alone isn’t free.  Even if they don’t pay an outsider for functions like compliance, investment management, operations or marketing, they spending their own valuable time on these tasks.  In fact, as the chart below shows, if we assume the advisor’s time is worth $150 an hour, as supported by a recent Financial Planners Association compensation study, outsourcing can be considerably cheaper than having the advisor perform all functions.  

For instance, take compliance.  An advisor handling all aspects of the compliance process might end up spending close to $20,000 per year in man hours (at $150 per hour), while hiring a compliance professional would likely cost $60,000 per year.  Yet an outsourced, technology-based compliance solution like RIA in a Box costs just $2000 per year.  Similar cost efficiencies can be achieved by outsourcing marketing and operation, as you can see in the chart.


And think about the investment management administrative support that the advisor in our first example opted for.  As you’ll see, the cost of outsourced trading, administration, proposal generation, reporting and other functions is slightly more than hiring a trading and analytic professional and slightly less than having the investment advisor perform these functions himself (or herself).  Yet, as we saw earlier, outsourcing gives the advisor access to systems and expertise that are better than what he could provide on his own.  It’s not just the money, but the assurance of doing the best job possible of meeting the client’s needs and goals.  

Choosing outsourced services

Every advisory practice is different, with its own unique strengths and capabilities, so it makes sense to think of outsourcing as a menu of choices, rather than an all-in-one solution.  Here are some of the key areas that advisors may consider outsourcing:

Investment management:  Outsourcing investment management makes sense if your business is primarily focused on financial planning, rather than asset management and investment selection.   If you’re a stock picker or you run tactical asset allocation portfolios or pursue any other highly active strategy, it may make sense to keep trading and other back office functions in-house.  However, for advisors who mainly create long-term strategic asset allocations for clients, outsourcing these services can be a significant advantage.  

A good outsourced solution will provide you with an integrated suite of investment management software, including rebalancing and trading software, proposal generation software, investment policy statement, billing and performance reporting. It will provide an electronic (or paper) checklist of all administrative processes that have to be performed to manage accounts, such as how to open and close accounts, add new money or make withdrawals, rebalance investments.  It will allow you to make changes across groups of accounts or across an entire practice as necessary.  And if you choose the right provider, a good investment management solution will allow you to customize client accounts to meet their unique needs.  

Compliance: Advisors with $50 to $100 million in assets generally don’t have the income to hire an experienced compliance professional (at $60,000 to $90,000 per year), but they often don’t have a good enough grasp of compliance issues to manage compliance themselves.  An outsourced solution like RIA in a Box can provide advisors with common sense procedures and strategies to meet compliance requirements and assistance with regular reporting such as the annual ADV update.  Outsourcers can also be a resource if the firm has questions about unfamiliar issues such as the compliance implications of establishing a social media presence.   

Operations: Individual preference comes into play here, since the cost of hiring an assistant to answer phones, complete paperwork, handle routine client inquiries and perform other administrative tasks can be manageable even for advisors with small- to medium-sized practices.  Technology solutions like virtual assistants are available, however, to advisors who prefer not to take on a full- or part-time staff member.  Setting up strong, well-documented processes and systems, however, will make operations run more smoothly whether your assistant is onsite or remote.  

Marketing: This is another function that advisors often take on themselves, even though they rarely have background or experience in creating marketing materials, establishing a web presence or developing a systematic lead generation process.  Outsourced marketing firms can provide a very professional market presence, including brochures, white labeled client communications including proposals, reporting, market commentary and investment ideas, an SEO-optimized website and social media impact via Facebook, Twitter, LinkedIn and other sites.   

This overview of outsourced services should give advisors the tools they need to start thinking about which business functions they want to keep in house and which they might delegate to a trusted partner.  

For those who are seeking outside help, REVISOR Wealth Management Partners has developed an integrated platform that includes all the tools advisors need, a one stop solution that firms can plug into seamlessly. Our unique approach to outsourcing offers module based implementation so that you can continue to manage aspects of your investment, operations, marketing or back office processes that you are not yet ready to relinquish. If your firm has special needs, our platform can easily be customized to meet them. For instance, say you have all your client information on a CRM system that is different from the one REVISOR offers. We can integrate your existing system into the platform. It offers the same level of support and flexibility available to large advisory firms— and it’s available to firms with as little as $25 million in assets.   
For more information about the outsourced capabilities provided by the REVISOR platform, contact us at      





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