Some service providers function not only as online toolboxes, but also as broker-dealers. One registered investment advisor, ADVISORport of Plymouth Meeting, Pa., provides access to an array of financial-planning services, as well as access to separate account managers and wrap-free programs. At a cost of about 15 basis points for each account dollar, the service is not cheap. On the other hand, compared with other third-party account providers and even some back-end portfolio accounting and performance-measurement firms, ADVISOR-port's pricing is competitive, especially for advisors with fewer embedded relationships and high average account size.
A growing segment of the financial- advisory market, including accounting and law firms and bank trust departments, does not have existing broker-dealer affiliation, notes ADVISORport co-founder Steve DeAngelis. In addition, he says, some major distributors view the service as a way to provide a standard fee-based advisory platform to their reps. "We're pretty far along in discussions with a broker-dealer that wants to give their couple thousand reps a standardized process and flow," he says. Since its April launch, the company has signed up 15 firms representing more than $500 million in assets.
Of course, outsourcing is not for everyone. These services are best for relatively new, smaller practices or businesses with multiple locations, says Norm Boone, an independent advisor based in San Francisco. His business is large enough to support a chief information officer. After crunching the numbers, Boone realized he would not save money by outsourcing.
Tan agrees larger advisors with cost-effective, in-house, information-technology departments or customized software may not need to outsource. Nevertheless, even larger practices such as Boone's face problems such as turnover and software compatibility that the new breed of virtual offices promises to solve. In general, out sourcing should be considered for repetitive, non-core business processes that are not cost-effective or otherwise burdensome to perform in-house.
Even for those comfortable with the idea of outsourcing, the sheer volume of services available can be daunting. Advisors should start by asking themselves, says Tan, "What are my objectives? Do I want to save time? Lower costs? Get the highest-quality service?" By analyzing their own needs first, he says, advisors can focus on management as opposed to operational issues. Tan further points to the importance of helping financial professionals to expand their client base and top line.
Second, advisors should get to know the people behind the virtual shops, says O'Connell, who actually flew to Vista to meet the staff and tour the offices of Asset Management Solutions. "I wanted to make sure they had the ability to grow with me and that they had a five-year plan," she says.
Security is also a huge issue. "It's not as simple as who has a key to the office anymore," says O'Connell, who cites confidentiality as her No. 1 concern in choosing a provider. Most providers claim to offer secure services, but it helps to look closely at the protective measures they have in place, both from a technical and human-resources point of view.
The financial-advisory outsourcing industry is just starting to take off, and the future promises more outsourcing options. "There's a bigger need than most people realize," Boone says.
Even more important, clients are demanding online service. As ever more sophisticated financial services giants encroach on the territory of the independent advisor, outsourcing those services offers a new and cost-effective way to compete. "It's hard to visualize right now, but five years from now, instead of 20% of our business being online, that will flip-flop to 80%," says O'Connell. She, for one, plans to be ready.