Outsourcing to investment advisers can mean anything from transferring responsibility for the entire process of client service to using outside services to handle only specific areas, such as investment strategy, back-office functions or portfolio management.
Advisers tend to be reluctant to either outsource or use technology for what they believe is a core function of their service model.
What’s more, the definition of “core function” differs for each adviser. For most, internal tasks such as payroll, tax preparation and website maintenance are not considered core functions. These tasks are easily and readily outsourced.
Certain advisory duties are also treated as noncore by most advisers. These can include downloads, reconciliations, client billing and reporting.
Core functions tend to be defined as those advisory duties that directly affect portfolio management such as financial planning, investment model construction and rebalancing.
For any of these functions, advisers have three options: do-it-yourself, use technology or outsource. Those who choose the do-it-yourself path for everything typically believe one or more of the following:
• No software or outsourcing service can do as well as an adviser.
• Personalized service flies out the window if you use software or outsourcing.
• Software and outsourcing services are expensive.
None of these beliefs is true.
High-quality software and outsourcing can do as well — or better — than an adviser using spreadsheets or manual methods. Since both software and outsourcing act only on input from the adviser, the output can be customized to the adviser and clients. And automated or outsourced processes can enhance quality control. Finally, can anything be called expensive if it helps efficiency, saves more labor dollars than it costs and allows for greater revenue without increasing overhead?
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