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Giving Advisors the New Value-Add: Client Face Time

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The wealth management industry has undergone tremendous growth in the last five years. RIAs with more than $5 billion in assets under management grew at a 24.7 percent five-year compound annual growth rate in 2021; but along with the welcomed growth comes an increasingly complex set of financial assets that now leave RIAs face-to-face with the decision of how to manage ever-evolving operating models. Technology is ultimately the answer, but the choice comes down to insource or outsource the elaborate set of new problems more involved investing and advising will bring.

An Argument for Outsourcing: Allowing Advisors to be Advisors

Perhaps the most crucial element of the client-advisor relationship is time. The hallmarks of any successful wealth management practice are new business, client retention, and referrals. A recent study shows that 9 out of 10 clients say the frequency of advisor communication and information sharing plays a major role in their likeliness to stay with them.

It’s no surprise that clients crave attention, but administrative duties often get in the way of advisors doing what they do best.

A typical day might look like prospecting new business, speaking with clients, researching new investment options/ calibrating portfolios, or dealing with trade completions. This has been the operating model for most advisors for decades, but the growing investment landscape is forcing new changes.

An increase in the demand for alternative investments (i.e., private equity and private credit, real estate, etc.,) means financial advisors now handle more sophisticated portfolios. This increases the complexity and amount of time that needs to be spent on research in addition to new tax implications not dealt with before. More clients and complicated investments mean advisors may have less time to do what matters most – speaking with clients.

Outsourcing new clients’ research, paperwork, and even the onboarding process via model portfolio partnerships allows advisors to focus on investment personalization for each client. Advisors have two choices: either expand their in-house staff to compensate for the increased workload or outsource to a partner that handles the tasks.

The assets available to clients are now most vast than ever, and advisors can have a strategic technological partner beside them in a model portfolio platform to make all aspects of the process more efficient.

Overhead Cost Reductions and Scalability

The structure of a firm and its goals will ultimately decide which operating model fits best. Still, overall, 58 percent of advisors say outsourcing reduces their operational costs, according to a 2020 study by Schroeder’s. Centralizing what were once manual processes like running reports, rebalancing portfolios, and generating invoices can now all be done on one platform. The overhead costs are reduced by bypassing the need for extra personnel and the technology to support them.

A centralized information platform allows for fewer errors linked to manual data entry and risks of tracking errors originating from system discrepancies, all of which ultimately leads to increased operational expenses. Smoother trading and transitions save time, cutting costs and allowing advisors and their staff to focus on clients and new business.

Advanced, model-based platforms allow financial advisory firms to outsource less valuable and time-consuming - although necessary - business practices that free up time for advisors to focus on high-value tasks and guidance.

Prioritizing personnel to the most high-value tasks allows firms to scale at a pace that mirrors the growth of the wealth management industry overall. As clients demand more and more, outsourcing crucial, but lower-value positions allow advisors and their firms to stay on pace.

Modern tax planning and personalization

Client portfolios look different now than they did just 15 years ago. The number of available alternative investments outside of the traditional 60/40 public equities/bonds play transforms every step of the advisement process. Tax planning is more straightforward when dealing with public securities and bonds. As clients become more sophisticated in what they seek, advisors also need to tailor their approach.

Tax management is a growing specialty in the advisory space, and in-house portfolios that are serviced at both the advisory and tax level are more likely to remain loyal clients. As a result, advisors managing these accounts may be able to run portfolios in a way that’s more tax-efficient and customized to the client.

Advanced rebalancing and trading can help firms customize model portfolios to their clients’ goals, manage tax households and ultimately scale their businesses. Centralized investment platforms also help to recognize cross-exposures across different investments (i.e., a client in the same stock across several accounts) helping to mitigate risk and ultimately redundant tax responsibilities. Further, this allows for advisors to see tax-loss harvesting opportunities more clearly.

Outsourced model portfolio solutions are not meant to replace the role of the advisor but instead provide the advisor with tailored information via new technology to make better, faster, and more customized plans for their clients.

In-House Solutions

The face of insourcing new processes and executions is also changing. For firms that prefer to keep things in-house, significant advancements in portfolio management solutions for rebalancing and trading are revolutionizing business operations. These software solutions tailor portfolio models, respond promptly to inquiries, and adjust client preferences, giving personnel a competitive advantage and allowing for more time to service clients.

While in-house solutions do not offer as much support or insights, they can still be valuable tools that sit alongside advisors and back-office employees to increase operational efficiency. Insourcing more advanced investment management strategies allow for a greater degree of differentiation and control over portfolios, net exposure, and household management. This solution might not fit every firm, but a family office for example might find value in more efficient platforms that sit alongside their in-house personnel to streamline operations.

Some advisors find that being able to tell clients all assets are managed in-house is a compelling differentiator and selling point, emphasizing a hands-on approach to handling their book of business. For advisors with many clients, technology can aid in making decisions more efficiently rather than spending time on day-to-day tasks, which takes time away from advising clients.

Insourced solutions will not provide the analytic punch outsourced models deliver but can be the right fit for smaller firms or advisors who want to get started in what model portfolios have to offer.

The Advisor Sidekick

Be it in-house or outsourced, model portfolios can only optimize an advisor’s performance. An advisor’s value-add has changed because the investing world has changed. Two decades ago, an advisor might have been wearied to allow a model portfolio to suggest their clients’ investments. Now, the breadth of available investments, double exposures, sophisticated alternative investments, trendy investing, and overall interconnectedness of the global economies has created a much more involved world in which an advisor’s greatest value can often be simply educating a client on how to avoid the noise. Model portfolios allow advisors to focus on the right time with their clients and drive - while technology handles the backseat.

intelliflo offers advanced in-house or outsourced financial advice technology solutions for businesses of all sizes. Book a personalized demo to learn more about how we can help.

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