Everything Advisors Need To Know About Outsourcing

Most financial advisors are already farming out non-core business functions to a third party. But how do you give up the reins if you’ve been doing it all yourself?  

Advisors who fought for their independence often start out with a do-it-yourself approach to every aspect of their business.

That means running the client accounts from back to front, hiring and firing support staff, keeping the computers up and running — all in addition to the core task of keeping your clients happy and courting new ones.

It’s a lot of work even for advisors who happen to be good in all these fields.

And the industry has woken up to the fact that it’s just not a smart way to work. The “lone wolf” approach is neither efficient nor scalable, and it’s no way to run a sustainable business.

So how do you pass the baton without missing a beat?

How do you even know your business has grown to the point when it makes sense to outsource in the first place?

For a step-by-step look at how other advisors have tackled these questions — and how happy they are with the results — you’re invited to next week’s free webinar, The Ultimate Guide to Outsourcing for Financial Advisors.(Register here)

I’ll be talking with Jon Reiners of the outsourcing firm Orion Advisors to get his insight into how the process works.

Start simple 

For example, a lot of advisors are convinced that outsourcing is an all-or-nothing thing.

In reality, you send out exactly the business functions that don’t make sense for you to handle in-house. Everything else stays under your control.

Portfolio data management and reporting is the one area where it makes the most sense to outsource, because it requires an understanding of both investments and accounting, as well as a technical or computer systems background.

Finding the right person to do these tasks in-house can be a challenge.

You need information reliably at your fingertips when analyzing your clients’ portfolios, so having someone outside the office troubleshooting and creating your client’s reports makes sense.

Outsourcing data management also takes pressure and stress out of the office. Your support staff probably spends a lot more time gathering and entering data than you think, which keeps them from serving your clients.

For that matter, you’re probably in that camp as well.

Portfolio reporting is critical to building client relationships, so don’t let it become a chore. Not only can outsourcing the data collection, reconciling, and reporting save time and money, it also reduces errors.

Naturally, a number of well-established companies provide outsourcing for portfolio data management, reporting, human resources, compliance, billing and investment strategy.

The hard part is picking the right partner. Hiring an outsourcing firm is not a decision to be taken lightly.

Finding the right vendor to help manage your business makes all the difference for a growing firm, which is why a diligent appraisal is vital.

Here are some suggestions on how to make sure you’re getting a good fit and a reliable partner:

  • Can the vendor you’re considering download electronically from major custodians, including the specific custodians you plan to use?

  • Can they capture transactions off the web for assets not held at major custodians?

  • Can they handle all asset types? The flexibility to incorporate fixed income, equity, mutual funds and alternative investments is important.

  • Will they offer support for entering assets manually if electronic entry is not possible?

  • Will the data reside on an in-house server or on the web?

  • Will there be Web access for your firm in addition to a client portal?

  • Are they able to consolidate all of a client’s investments into a single report?

  • Do their reports compare actual allocations with targets?

  • Will you have a single point of contact, or are you working with a team?

  • Does the vendor understand investments as well as the technology?

  • Do they give you the ability to retrieve data from the system in order to create custom reports?

  • If you decide you no longer want to use the vendor, can you easily retrieve the data and bring it in-house or transfer it to another outsourcer?

  • How comprehensive are the vendor’s documentation and procedures?

  • How extensive is the user training they offer?

  • Is there a disaster recovery plan?

  • What are their billing solution capabilities?

Maintaining the relationship  

Your outsourcing vendor will become an extension of your firm, and they will be a partner in providing your clients with the best service possible.

Talk with everyone before committing, especially the individuals that will be handling your clients’ accounts on a day-to-day basis.

You want the contact person in your office and their counterpart at the outsourcing firm to have a good working relationship. Ask for and speak to references.

Once you understand the costs, analyze the cost of achieving the same results in-house. How many employees would you have to hire?  At what salary and benefits?

Consider what you could do with the money you’d save by outsourcing. Outsourcing allows you to invest in staff who serve clients directly, keeping your back office lean.

That said, you should expect to have a person on staff to manage the relationship with the outsourcing firm — someone who understands both investments and the technology behind the system.

While weighing the costs and benefits, look at your return on investment not just in the short term but in the long term as well.

Outsourcing may not be the cheapest solution up-front, but by concentrating on your core competencies and growing without hiring additional staff, you will reap benefits.

Whether you’ve been cautiously testing the water or are eager to make the plunge, I hope you’ll join us next Tuesday (August 21) at 2:00 ET.  Slots are limited, so register now

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