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What Drives Advisors to Consider External Expertise?

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The fundamental goal of helping clients build and maintain wealth remains the same, but it would be difficult to make a case that the advising profession looks like it did 10 years ago. Traditional methods for attracting clients, increasing AUM, and boosting productivity have been disrupted by trends, including:

  • a shift from intuitive, human-based advising to analytical, tech-oriented tools
  • the democratization of access to investment strategies and asset classes
  • rapid technology advancements that change customer experience expectations
  • increasing (gender, racial, generational, etc.) diversity of the wealth management client market

These factors can often amplify each other and have collectively sparked a dramatic re-thinking of business models and scalability tactics.

FlexShares has worked to stay abreast of how financial advisors can uncover efficiencies to achieve growth in the face of these dynamics. With our latest research The Race To Scalability 2020, FlexShares continues a 10-year commitment to illuminating the ways advisors might bridge the needs gap using external investment management services. FlexShares recently talked to over 500 respondents in the advising profession, including RIAs (33%), independent broker/dealers (35%), hybrid/dually registered RIAs (13%), regional broker/dealers (8%), Insurance broker/dealers (6%). The size of assets under management across the respondent pool ranged from under $50 million (27%) to over $3B (13%).

The Quest for Better Business Outcomes

The industry transformation of the past decade has sparked a relentless push to achieve increased efficiency in the face of rising demand for better client experiences. We discovered from our survey results that the use of third party expertise as a way to achieve better business outcomes has remained strong. However, the nature and scope of implementation indicate that outsourcing has adapted as a tool of strategic precision, rather than a one-size-fits-all solution.


The discerning clients look for the prospect of a memorable experience in which their unique needs and goals are met consistently.

Advisors were asked to provide three primary drivers for using external management support. “Freeing up time” in the practice was reported as one of the core reasons by 51% of respondents. A third of advisors wanted to gain access to “institutional quality due diligence/monitoring”. Increasing access to investment product strategies contributed to the decision for 29%. And a fifth of participants wanted external support, at least in part, because investment management was not their core area of expertise. Other popular strategic goals included reducing costs associated with managing portfolios internally (18%) and improving client retention rates (17%) We found these responses to be similar to those received in our 2018 survey.

The goals behind using external investment manager services seemed to vary with the type of financial advisor. Freeing up time was the most popular priority for RIAs (60%) and hybrid advisors (69%). For as much as 43% of regional broker-dealers, the top goal was improving business development and client acquisition. A third of independent broker-dealers showed a preference for using external support to provide clients with better access to investment strategies while the same portion of insurance broker-dealers aimed to improve retention with external expertise.

Key Takeaways

  • More time with clients has been a key driver in considering external managers
  • Goals for using external managers vary by advisor type
  • Use of external support in “product selection” has nearly doubled since 2018

The top three outsourced activities among our participants were portfolio management (66%), investment manager research (35%), and asset allocation (32%). This year’s survey was the first time we inquired about the usage of outside asset allocators. Also, we continued our new conversation about product selection and learned that 15% of advisors use external managers for this service, nearly double the rate of 2018.

Nearly half of the advisors told us that practice management tools received from outside managers were a driver in their decision to outsource activities. We asked advisors if they believed that an external management solution has helped them grow their revenue. 59% of advisors answered “yes” versus 15% “no”.

External support might not be a fit for every scaling challenge or every advisor. To the client base, financial advising can often seem like a very generic product. The discerning clients look for the prospect of a memorable experience in which their unique needs and goals are met consistently. An advisor working -- from the very first engagement -- to understand these priorities on an individual level can better deliver that special, deeper value that clients seek.

To learn more about how advisors are creating efficiencies and scaling their business, check out our white paper The Race to Scalability 2020: Insights from a decade of advisor research. You can find in-depth coverage of our survey results to help you understand how peer firms are strategizing to stay on the competitive side of a rapidly transforming industry. Also, follow our blog series to get more snapshots and insights.

RTS2020

Created in conjunction with Tasha Williams of TTW Consulting

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