Advisers Increasingly Turn to Third-Party Asset Managers
Many view this as a way to make their practices more efficient, plus add value.
FlexShares, the exchange-traded fund (ETF) unit of Northern Trust Asset Management released its fifth biennial study exploring financial advisers’ views on and adoption of external investment management services. Forty-three percent of advisers employ third-party investment management solutions.
Advisers are outsourcing 57% of client assets, up from 53% in 2016. The top three reasons they give for doing so are to “free up time in my practice” (61%), to “gain access to institutional quality due diligence/monitoring” (47%) and to “gain access to a variety of investment product strategies” (43%).
Advisers also turn to outside sources to access niche strategies, particularly alternative investments (65%), emerging/frontier markets (43%), environmental, social and governance (ESG) investments (17%) and smart beta investments (14%).
Ninety-seven percent of advisers who outsource some or all of their assets are satisfied with the service, up from 92% in 2010. Sixty-two percent said that by outsourcing investment management, they have grown their client base, and 30% have seen their revenue increase.
“As advisers adapt to a growing demand for financial planning services and rising pressures on their bottom line, they are increasingly looking to employ external investment management services and to focus on activities through which they can add the greatest value,” says Laura Gregg, director of client development at FlexShares. “As they dedicate more client assets to outsourcing, advisers are able to benefit by spending more focused time with clients, as well as concentrating on business development activities.”
Among advisers who are not outsourcing investment management, 32% said it is because investment management is a core part of their firm’s value proposition. However, this is down from 56 % in 2014.
Forty-eight percent of advisers are also looking for external marketing support; 29% want external compliance support; and 24% want social media training from an outside source.
Six percent of advisers use a digital advice platform, and 12% plan to incorporate one in the next year or two.
FlexShares’ findings are based on a survey of 600 advisers conducted in February and March.