Financial Advisors Who Outsource Investment Management Report High Satisfaction Levels
Chicago , October 03, 2012 —
A Northern Trust survey of financial advisors shows that the trend of outsourcing investment management activities remains popular. One half of the outsourcing respondents reported contracting out all investment management activities. These respondents say outsourcing helps them achieve productivity and profitability, with 64 percent saying it gave them more time to spend with clients and 60 percent saying it gave them the ability to develop a more consistent investment management process.
Investment outsourcing is the use of external providers for investment management as opposed to conducting all investment management-related activities in-house.
The survey, "Investment Management Outsourcing: The State of the Art in 2012," an update to Northern Trust’s initial 2010 survey on this topic, polled more than 500 financial advisors with assets under management from under $50 million to over $1 billion.
The 2012 survey found that advisors who outsource said that it positively impacts the growth of their practices. Ninety-four percent said they were satisfied with their outsourcing solution. Outsourcing advisors also noted that the top drivers to outsourcing were:
- Access to asset allocation models
- Access to managers that advisors could not hire on their own
- The potential to generate alpha through investment ideas.
The majority of advisors who do not outsource investment management said that their in-house management of client assets was central to their firms’ value proposition. The non-outsourcing advisors reported spending a significant amount of time on related activities such as investment manager research, portfolio construction and monitoring. More than six out of 10 advisors from larger firms (those with more than $150 million in assets under management) report spending more than 15 hours a week on key investment management tasks.
"Financial advisory firms are seeking more efficient ways to manage time and control costs while positioning their practices for long-term growth and a consistent client-centric experience," said Eric Schweitzer, Northern Trust Managing Director of Direct Distribution. "Our research found that advisors looking to outsource highly value flexibility in an outsourcing provider. They also said that the single most negative impact of outsourcing was poor investment performance."
Key survey findings include:
- Six out of 10 respondents outsource more than half of their clients’ assets. That includes 37 percent of respondents who outsource 75 percent to 100 percent of client assets.
- For 43 percent of advisors, outsourcing is leading to some changes in fees charged. While more than half (57 percent) of those surveyed say outsourcing has had no effect on fees charged to clients. Almost one-third (28 percent) say they’ve increased fees and 15 percent say fees have decreased.
- Advisors from larger firms that don’t outsource are increasingly burdened with investment management-related tasks. More than six out of 10 advisors from larger firms report spending nearly two full workdays a week on three key investment management tasks.
Northern Trust works closely with financial advisors and outsourcing solutions providers such as turnkey asset managers to offer investment products that seek competitive returns, but with controlled levels of risk.
ABOUT THE SURVEY
Over a three-week period in June and July 2012, a total of 510 advisors responded to a survey of Advisor Perspectives subscribers. Answers to the survey’s first question split respondents into two groups: those who outsource and those who don’t. Analysis of the research included consideration of the advisors’ firm type (independent financial planning/investment advisory, RIA or regional broker-dealer), firm size (the smaller firms label applies to those with $150 million in assets or less, larger firms have $150 million in assets or more) and compensation model (asset-based or a combination of commissions and fees). Financial advisors used the survey’s comment fields to add additional considerations or elaborate on their responses. Their verbatim comments appear throughout the report, which is an update to Northern Trust’s 2010 research study. The research reports may be accessed by visiting www.northerntrustinvestments.com/outsourcing.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of investment management, asset and fund administration, banking solutions and fiduciary services for corporations, institutions and affluent individuals worldwide. Northern Trust, a financial holding company based in Chicago, has offices in 18 U.S. states and 16 international locations in North America, Europe, the Middle East and the Asia-Pacific region. As of June 30, 2012, Northern Trust had assets under custody of US$4.6 trillion, and assets under investment management of US$704.3 billion. For more than 120 years, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology. For more information, visit www.northerntrust.com or follow us on Twitter @NorthernTrust.