servicing strategies | PLANADVISER November/December 2016

Cultivating Your Practice

The right ingredients to grow your business

By John Manganaro | November/December 2016
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Art by Josh Cochran

With much fundamental change occurring in the financial advisory industry, it is fair to say that positioning a firm for strong growth is about much more than simply adding an extra adviser or two. In many cases, a better option might be growth through outsourcing, for instance—particularly for the investment management component of a practice.

The job of scaling up an advisory practice today is undoubtedly made more difficult by the fact that the basic understanding of what advice is and should be is shifting. According to recent research from Cerulli Associates, for example, successful financial advisers today spend less than 20% of their working time thinking about investments and effectuating investment decisions.

“While investing is a key component of any financial plan, advisers spend more time tending to client-related activities, such as acquiring new clients and meeting with current clients,” says Emily Sweet, senior analyst at Cerulli in Boston. “They allocate the remainder of their time to administrative tasks, including office management and compliance-related work.”

More important than the simple fact that advisers spend just a fifth of their time on investment-related work is the fact that those who outsource more of their recurring investing tasks appear to be much better at managing business complexity and building scale in their book of business. Advisers taking this approach may rely more on service partners for investment maintenance and even the basic portfolio construction work that traditionally would have been conducted in-house, but they have much more time to focus on understanding client needs and providing more personalized service dedicated to building long-term, personalized plans and goals.

Experts in a variety of industry positions agree—this is the key to not only building scale but to simply surviving in the new fiduciary future. Repeated—and time-consuming—manual processing-tasks simply cannot be left to an adviser or another human staffer to complete as profit margins continue to be squeezed tighter and tighter.

“Framing their role as relationship-focused could be difficult for many advisers because their value proposition has historically been investment-centric,” Sweet adds. “Our data shows that after tending to important client needs, time available to manage investments is limited. Outsourcing elements of investment management can vastly enhance efficiency.”