It takes time to provide personalized, actionable and impactful financial advice. This is time well spent when it adds value for clients, deepens relationships, and grows the business. But the competitive structure of wealth management has shifted and client needs are evolving, calling for a more efficient service model.
The introduction and wide-scale availability of outsourcing options has been influential in growing a financial advisor’s capacity to spend more quality time with clients, create investment process efficiencies, and strengthen the menu of services offered. Ultimately, this helps to achieve scalability.
What does it mean to outsource portfolio management?
A third-party model portfolio manager handles the investment functions for the strategy, including research, risk management and administration. Outsourcing does not mean opting out of investment responsibilities on behalf of clients. Advisory practices maintain their rigorous process for selecting portfolios that reflect client goals and risk tolerances, using transparency into the strategy’s investment objectives and portfolio construction in their decision process.
Recognizing the challenges facing advisors in proficiently running client portfolios and in ceding discretion, my team at State Street Global Advisors set out to reveal the usage and perceptions of outsourcing, along with the impact on practice development, advisor value and the client experience. Our new research finds that advisors are, on average, spending more time on portfolio management tasks than on activities that support either of their top business goals—deepening relationships with current clients or client acquisition.1
Investors understand model portfolios and recognize their benefits
The advice industry has long moved away from selling outperformance. Advisor value is better measured by the impact of services on investors’ financial outcomes.2 Case in point: In our research, most investors with assets in model portfolios agree that “My financial advisor understands my financial needs and goals,” while the fewest investors reported “My financial advisor’s only responsibility is to construct portfolios to match my risk tolerance.”
There is a perception that investors are either unaware of or opposed to outsourcing portfolio management and using model portfolios as an investment vehicle. In reality, the majority of investors are aware,3 and only 10% are opposed.4
While it may sound counterintuitive, investors with assets in model portfolios feel better about their advisory relationship and are actually more satisfied with the wealth management experience.5 The combination of greater personal attention from their advisor and high confidence in their investment portfolio generates strong feelings of trust and satisfaction among clients.
Investors see the bigger picture when it comes to model portfolios. They recognize specific benefits related to performance, risk and fees.
Investors Recognize the Benefits of Model Portfolios