When Financial Advisory Practices Should Outsource or Hire
As discussed in Self-Assess to Success! Part I: You Can’t Manage What You Don’t Measure, there are many components of a successful financial advisory practice that live “below the surface.” Once identified and measured, it is important for a financial advisor to recognize those operations and services that can be outsourced or delegated for increased efficiency and enhanced productivity.
Michael Kitces outlined the growth trajectory of the typical financial advisory practice in his Financial Advisor Success Podcast Discussion With Jared Siegel. He stated, “…This dynamic that happens where we start advisory firms and it’s awful for pretty much everyone at the beginning… You start getting going, clients are coming in, they’re engaging, they’re paying. You’re getting more of them, a few of them are even referring. The dollars start getting a little better, things start adding up. And then it gets so busy that you’re just like, ‘Geez, I need some help around here.’ And we start hiring, and then hiring lets us grow a little more… Then all of a sudden, at some point, a couple of years in, you don’t actually do very much stuff with clients anymore because you’re mostly stuck in this world of hiring, and training, and managing all of the people, and dealing with all of the back office, and the systems, and the infrastructure that goes with it.
That infrastructure, while necessary to run a thriving financial advisory practice, takes time and expertise that a lot of advisors don’t have. It is at this critical moment that a financial advisor must figure out what their ideal practice looks like and what exactly they want to build.
If that ideal includes a growing client base where you continue to accumulate assets, then the likelihood is you will reach a saturation point at which you can no longer take on new clients and manage the business on your own. At this moment of stagnation, it is time to consider hiring and/or outsourcing. The next conundrum… you have to spend to grow. Or do you?
Areas to Consider Hiring or Outsourcing:
Administration and Operations
Hiring administrative and operations support is the ideal starting point for most growing financial advisory practices. It can provide a much-needed lift in terms of paperwork and administrative burden, which are necessary evils in the financial advisory world.
Often, this stage of growth can feel like it is adding more work rather than lightening your workload. The entire process of creating the job profile and ideal candidate, searching for the right hire, training the new hire, and managing them going forward can feel like another job in and of itself. Human resource management is outside of the typical financial advisor’s skill set and often results in paralysis by analysis. Afraid to “take their eye off the ball,” said advisor goes back to managing every aspect of their day-to-day business. This advisor will never find their way out of being a solo practitioner.
Another option is to partner with your preferred organization or find an outsourced solution. If you are aligned with a larger organization, inquire as to what services they provide that can assist you in growing your team. For independent advisors or those in the process of transitioning to a new business structure, look for organizations that offer administrative support and or shared support services. These can often be a great resource where a financial advisory practice can tap into the human resources capital needed to fill their growing administrative needs.
While an advisor can organically grow their team by hiring, they can also expand their capabilities and growth capacity by outsourcing certain infrastructure. The advantages of outsourcing are minimal execution risk, minimal management requirements and aligned cash flow interests (cash flow requirements increase alongside revenue growth). For most advisors, these dollars are already being spent; however, by redirecting their source you may be able to substantially increase the advantages to your practice and your clients.
Investment Planning and Management
One of the most cited reasons by advisors for outsourcing investment management is lack of expertise. While hiring an in-house investment team can provide control over day-to-day portfolio management, it also requires a tremendous amount of time and financial resources, not to mention future personnel risk if that person were to choose to leave your organization.
Alternatively, aligning with the right strategic partner offers the opportunity to delegate portfolio planning, construction, management, and administration to skilled professionals with a dedicated focus. From investment due diligence to portfolio construction and ongoing oversight and re-balancing, the right partner should provide the technology, processes, and expertise to lift these time consuming operational and administrative tasks from your plate.
According to a study by Fidelity, the top three areas advisors outsource at their financial advisory practices are technology, investment management/portfolio construction and legal/compliance. In addition, according to another industry study*, 98% of advisors surveyed stated they delivered better investment solutions due to outsourcing. Whether it is advantageous for an advisor to outsource these key practice areas goes back to their unique strengths and value proposition.
Sustainably & Strategically Growing Your Financial Advisory Practice
The benefits to an advisor who strategically plans for their growth by outsourcing are plentiful. First, by creating the capacity for growth you in turn increase your rate of growth. Second, advisors can focus on the critical pillars of client service and relationship management, which are typically the reasons they became an advisor to begin with (they enjoy meeting people and helping them plan for a successful financial future). Third, a specialist approach allows advisors to elevate the level of expertise they deliver clients, often a necessity when working with higher net worth and complex clientele. Finally, in an increasingly complex financial environment, a financial advisory practice that is well structured to tap into the expertise of different service providers is better positioned to deliver a differentiated and enhanced client experience.
To learn more about the power of partnering with Fountainhead Asset Management, visit our website at fountainheadam.com. Enhance Your Story With Us.
*Source: AssetMark, Inc. “The Impact of Outsourcing: How Financial Advisors Are Better Serving Clients and Elevating Their Businesses.” 2022.
IMPORTANT DISCLOSURE: The information contained in this report is informational and intended solely to provide educational content that we find relevant and interesting to clients of Fountainhead. All shared thought represents our opinions and is based on sources we believe to be reliable at the time of publication. While we continue to make these reports available, we do not update past reports in light of subsequent events. Nothing in this letter should be construed as investment advice; we provide advice on an individualized basis only after understanding your own circumstances and needs.