A lot has been written about the changes that COVID has brought to many aspects of our lives—from work, communication and education. One longstanding business trend accelerated during COVID: outsourcing as a means of improving productivity and customer access.
The same could be said about financial advisors use of third-party outsourcing. There has been a consistent trend for the past 20 years (with the rise of the holistic financial planning and RIAs) of advisors utilizing a third-party for many aspects of managing their businesses. Much of their focus is on scaling certain services so they can dedicate more time to clients. The success of this practice is illustrated by stability – once a firm chooses to outsource, they don’t go back on that decision. In a 2020 study1, 41% of survey respondents say they outsource investment management— virtually unchanged from the 42% who outsourced in 2010. In fact, those advisors who use external investment management stick with it, with 47% of those surveyed saying they have outsourced investment management for more than 10 years, up from 30% in 2014.1
However, within the decision to outsource is a cascade of other decisions about which job functions they should delegate to these third-parties. The most popular has been investment management, followed by performance reporting and fee billing, as well as other “back office” functions.
With COVID, these big picture trends are still in place. What has changed is the nuance within how advisors are utilizing these services and embracing new ones. A great example is the increase in use of “active passive” investment solutions. In this solution, portfolio construction and management are overseen actively; passive vehicles are used to fulfill a large part of the investment mandate, with active managers used in specific areas.
Another area where we see this trend playing out is with the bifurcation for which accounts advisors’ chose to utilize third-party managers. In the past, there was a tendency to favor external investment management for larger accounts, perhaps because of their complex needs. Today, it seems that advisors who opt for third-party investment management view the choice as suitable for portfolios of all sizes and complexity, including new accounts and smaller accounts. There were large increases in the use of third-parties for new accounts and smaller accounts (from 7% in 2018 to 17% in 2020 and from 13% to 22%, respectively).1
With the backdrop of the continuing use of third-party managers for a more diverse set of functions and the stability and growth that can come from outsourcing, why wouldn’t you explore a partnership with Congress Wealth Advisor Solutions?
1The Race to Scalability 2020 Current Insights from a Decade of Advisor Research on Investment Management Trends FlexShares Exchange Traded Funds 11/20.
Congress Wealth Management LLC (“Congress”) is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). For additional information, please visit our website at http://www.congresswealth.com or visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Congress’ CRD #310873.
This note is provided for informational purposes only. Congress believes this information to be accurate and reliable but does not warrant it as to completeness or accuracy. This note may include candid statements, opinions and/or forecasts, including those regarding investment strategies and economic and market conditions; however, there is no guarantee that such statements, opinions and/or forecasts will prove to be correct. All such expressions of opinions or forecasts are subject to change without notice. Any projections, targets or estimates are forward looking statements and are based on Congress’ research, analysis, and assumption. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. This note is not a complete analysis of all material facts respecting any issuer, industry or security or of your investment objectives, parameters, needs or financial situation, and therefore is not a sufficient basis alone on which to base an investment decision. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this note. No portion of this note is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Investing entails the risk of loss of principal.
