Making your advisory practice more efficient starts with the basic concept of maximizing limited resources to produce more revenue. While there are several ways to do this, such as turning to digital client tools or offering hybrid-pricing solutions, the biggest challenge then becomes maintaining client service and a personalized experience. So, how can advisors grow their business without sacrificing their current service?
For many firms, outsourcing to external investment managers may be the answer. Northern TrustAsset Management’s FlexShares ETFs has been studying the topic of investment outsourcing for the past decade through our “Race to Scalability” advisor surveys, and found more than a third of advisors consistently choose this route. The original study in 2010 found that 42% of respondents had decided to engage external managers, and 10 years later the number remains almost the same at 41%.
However, the findings of 2020 point to changing perceptions in the industry, as traditional methods continue to be tested by environmental factors and new lines of business. In early 2020, FlexShares surveyed more than 500 respondents in the advising industry, including RIAs (33%), independent broker/dealers (35%), hybrid/dually registered RIAs (13%), regional broker/dealers (8%) and insurance broker/dealers (6%), whose responses suggested that additional growth for external management services could lie ahead.
The report found dramatic decreases in the percentage of non-outsourcing respondents who claim that their minds will “not be changed” when it comes to using an external manager. The number of participants willing to reconsider outsourcing options went from 48% in 2010, to 70% in 2020. This change in opinion from advisors has opened the door for greater considerations to switch up business models and move into new strategies which in-house options may not offer.
Transition Into New Approaches
What is the primary reason for this change in perspective? In 2020, the Covid-19 pandemic pushed many businesses to reevaluate every aspect of their business profile and model. This included a reassessment of how the firm delegates its investment management. Of the respondents who keep investment management solely in house, 15% said they plan to increase their reliance on third-party assistance and 85% said they plan to reconsider incorporating an outside manager into their business line. With the pandemic continuing to shake up traditional ways of doing business, FlexShares expects this trend to continue going forward.
Another element in transition is the number of advisors who view investment management as their core value proposition, which has been on a relatively steady decline. Advisors have begun to demonstrate their value in a broader range of activities, and there has been a general industry shift to a more holistic financial planning approach. In 2020, 33% of respondents told us they saw investment management research as their primary business proposition. Slightly higher than 32% in 2018, the percentage has been on an overall decline—from 54% in 2012 and 56% in 2014.