CHICAGO A growing number of certified financial planners are outsourcing administrative tasks and investment management under a strategy they say gives them more time to spend with clients and access to resources resembling what large institutional companies offer.
For example, Jude Boudreaux, a New Orleans certified financial planner, says he wants to keep his personal touch with clients. He outsources his investment management to a turnkey asset management program, or TAMP.
It's good for business, too. A study this year by Northern Trust Corp, a custody bank and wealth manager, showed that 70 percent of advisers reported growth after outsourcing.
Many advisers say spending more time helping clients plan their lives results in more referrals with fewer marketing dollars spent. For Boudreaux, the extra time brings him more satisfaction than the money. He cited a fellow adviser who works until 3 a.m. doing administrative tasks.
"That would suck the value out of my life," Boudreaux said.
Hiring a third-party provider to handle anything from portfolio construction and management to rebalancing, compliance, research and back-office support has been a fast-growing trend among advisers over the past decade, according to a recent report by consulting firm Tiburon Strategic Advisers.
The Northern Trust survey of 200 advisers showed that of those who outsourced, 53 percent of them use TAMPs for their one-stop-shopping.
"Researching investments, aligning them with risk profiles, getting trades right and doing all the reporting and compliance is a substantial undertaking," said Alice Lowenstein, director of portfolio strategy for Litman Gregory in San Francisco.
AssetMark Inc., which has about $20 billion in client assets on its platform, says it can provide advisers some of the same tools used by institutions, such as the ability to create "what if" scenarios. Other popular TAMP firms include Envestnet Inc. and Symmetry Partners.
Christopher Knight, a Charlotte, North Carolina, certified financial planner, wanted to spend less time doing investment models and research and found a money manager who shared his preference for passive, buy-and-hold investing.
A general assumption for many advisers who avoid outsourcing is that costs will be stifling. Fees and costs vary, however, depending on the services.
COST VS. BENEFIT
Advisers have to decide whether to pay the costs themselves or pass all or some of them on to clients. Knight says his clients pay his hourly fee and get another bill from the investment provider, which currently amounts to about 0.45 percent of the assets under management.
Advisers who don't outsource, according to the Northern Trust study, feel that investment management is a big part of their value. Some also fear clients won't respond well to the idea of outsourcing.
However, 92 percent of advisers who outsource said their clients responded positively to the firm's decision to outsource, according to Northern Trust.
Knight said he tells clients it's a partnership.
"From the client's experience, it's all driven by me with specialists behind me," he said.
He still assesses client risk tolerance level, time frame and goals and chooses one of seven model portfolios his provider offers. He then adjusts with input from clients.
Cary, Illinois-based financial planner Dave Grant, founder of Finance for Teachers, says clients are surprised when the total price of custom services is less than 1 percent of their portfolio assets.
He said if a client comes to him with $1 million in assets, he will charge them a $5,400 fee, while his TAMP, Asset Dedication LLC, charges $3,500. That works out to 0.89 percent of assets. Grant's fee will decline as a client's assets increase, because he doesn't increase his fee on assets above $1 million.
WHERE TO START
Before choosing a TAMP, consider the following:
- Look for providers that share your investment philosophy.
- Decide what services you need. Options can range from basic investment services to soup-to-nuts offerings.
- Find out the account minimums for adviser and client; they can vary significantly by provider.
- Get a rundown of all fees and costs.
- Who is the firm's custodian? Gaining automatic access to one of the big custodians that normally require $10 million minimums can be a big bonus.
- Is the technology easy to use and integrate with your current software? Will clients have access to their own portal?
- Look into the ease of transitioning in and out of the plan. What are the logistics for adviser and client if you change providers?
(Corrects parameters of study in paragraph 7 to show that the 53 percent of TAMP users are drawn from those financial advisers who outsource, instead of from all 200 advisers in the survey)
(Editing by Tim McLaughlin)