outsourced investment management

Between 25% and 50% of financial advisors today outsource some or all of their investment management functions. But is outsourcing right for your firm? A look at the key benefits and tradeoffs involved can help you make the decision that’s in the best interests of your firm – and your clients.

The Benefits of Outsourced Investment Management

Relieves the Burden – and Costs – of Account Administration

The back office resources required to support advisors’ management activities are both time-consuming and costly. The systems needed – for portfolio accounting, performance reporting, billing, and trading – must be operated by skilled staff, and be regularly updated and maintained. Yet recent industry studies conclude that these efforts bring little value to the firm and steal time from those activities that do, like client engagement and networking. No less important are the distractions that often come with these tasks.

Allows Financial Advisors to Focus on Value-added Activities

Advisors who outsource essentially buy back time they can use to do what they do best. For some, that’s working with clients and finding new ones — 82% say they wish they could spend their time with clients/growing their businesses. Similarly, some advisors want to spend that time on activities with greater value to the client, like financial planning, tax and estate planning, and even behavioral coaching – setting expectations and keeping clients focused on their goals, especially during times of market volatility.

In addition to these benefits, outsourcing also enables advisors to more easily comply with regulations, enhance the credibility of the firm’s investment services, and institutionalize its practices, making it easier to sell the firm at some point in the future.

Generates More Revenue

Ultimately, devoting more time to value-add activities pays off. Those advisors able to spend more time nurturing clients and prospects bring in $1 million more in revenue over a 10-year period than those who manage their clients’ portfolios in-house, according to a study conducted by SEI Advisor Network & FP Transitions. The same study showed that advisors who outsource add an additional $14.5 million to their assets annually, on average – twice the amount in-house investment managers have added to their asset growth.

Discover What Betterment for Advisors Can Do for Your Firm

The Tradeoffs of Outsourced Investment Management


Outsourcing adds a direct cost to the firm, but that cost has to be viewed alongside potential benefits (and weighed against the costs associated with managing accounts in house). At least one study has shown that financial advisors who outsource tend to have larger, more profitable firms than those who do not.

Over the last decade, on average, a client-focused advisor saw revenue from new and existing clients increase by $1.9 million, more than twice that of an investment management-focused advisor. Furthermore, firms that outsource investment management add 250% more clients each year than those that handle it in house.


Depending on who you choose to outsource your investment management to, you may give up some control over your clients’ portfolios. Some model providers have limited options that may or may not be flexible enough to meet your clients’ needs. With solutions like Betterment for Advisors’ Flexible Portfolio, advisors have the ability to deviate away from our model portfolio if it makes sense for the client given their circumstances, current holdings or social views. Advisors can adjust asset class weights within their clients’ core portfolios while still receiving guidance on the diversification and overall risk level of the portfolio.


The quality of the ongoing service you receive from your outsourcing partner will determine how satisfied you are with your decision to outsource investment management. Before selecting a partner, understand the service model and walk through basic procedures, like opening accounts and generating proposals. Involve staff members to broaden the perspective and help identify potential issues.

Ultimately, the decision about whether to outsource should be based on the needs, goals, and preferences of both your firm and the clients you serve. If growing your business and optimizing the use of your skills and those of staff members is a priority, outsourcing investment management could be a strategic move that opens you up to more revenue, streamlined processes, and more satisfied clients.

This article was originally published on Advisor Perspectives.

This article was published on October 16, 2018

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