A Northern Trust survey of financial advisors shows that the trend of outsourcing investment management activities remains popular. One half of the outsourcing respondents reported contracting out all investment management activities. These respondents say outsourcing helps them achieve productivity and profitability, with 64 percent saying it gave them more time to spend with clients and 60 percent saying it gave them the ability to develop a more consistent investment management process.
Investment outsourcing is the use of external providers for investment management as opposed to conducting all investment management-related activities in-house.
"Investment Management Outsourcing: The State of the Art in 2012,”
an update to Northern Trust’s initial 2010 survey on this topic, polled more than 500 financial advisors with assets under management from under $50 million to over $1 billion.
The 2012 survey found that advisors who outsource said that it positively impacts the growth of their practices. Ninety-four percent said they were satisfied with their outsourcing solution. Outsourcing advisors also noted that the top drivers to outsourcing were:
- Access to asset allocation models
- Access to managers that advisors could not hire on their own
- The potential to generate alpha through investment ideas.
The majority of advisors who do not outsource investment management said that their in-house management of client assets was central to their firms’ value proposition. The non-outsourcing advisors reported spending a significant amount of time on related activities such as investment manager research, portfolio construction and monitoring. More than six out of 10 advisors from larger firms (those with more than $150 million in assets under management) report spending more than 15 hours a week on key investment management tasks.
“Financial advisory firms are seeking more efficient ways to manage time and control costs while positioning their practices for long-term growth and a consistent client-centric experience,” said Eric Schweitzer, Northern Trust Managing Director of Direct Distribution. “Our research found that advisors looking to outsource highly value flexibility in an outsourcing provider. They also said that the single most negative impact of outsourcing was poor investment performance.”