What to Watch Out for When Outsourcing Investment Management
This article is a companion piece to this podcast.
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I’ve worked at firms that offer outsourced portfolio management services – so-called turn-key-asset-management providers (TAMPs) – for almost 30 years. I know the industry very well and have seen my share of disasters. Here’s what to watch out for when selecting a TAMP.
Most articles about outsourcing investment management are written by people who sell such services. This one is no exception. But the purpose of this article is not to sell you on outsourcing or my firm’s offering.
In this article I’ll try to answer these five questions:
- How do you know if you’re a good candidate for outsourcing?
- What are the available options for outsourcing?
- What services do you get when you outsource?
- What are the benefits of outsourcing?
- What factors should you consider when choosing an outsourcing partner?
Is it for me?
Skip the remainder of this article if you are not a good candidate for outsourcing. Here’s how you find out if you are.
Start by asking yourself, “What’s my passion?” If you became an advisor because you love the technical aspects of investing, you are not a good candidate for outsourcing. Why give up an activity that brings you great joy?
Also ask yourself, “Where do my talents lie?” If you are passionate about investing, but not particularly talented at it, consider outsourcing. You are a fiduciary and should be focused on providing your clients the best possible investment outcomes.
Then ask yourself, “What are my goals?” Advisors who are passionate about investing may have overriding goals that make outsourcing a smart choice. Examples include advisors who love investing, but love doing financial planning even more. Or advisors who want to sell their practice and realize it may be harder to do so if they are the chief investment officer.
Finally, ask yourself, “Can I give up control?” When you outsource, you give up a significant amount of control over the management of client portfolios. You also give up control over other things like the design of the performance reports and the functionality of the client portal. If you will be miserable if you can’t control everything, outsourcing is not for you.
If you’re on the fence about outsourcing because you think your clients view investing as part of your personal value proposition, you might want to reconsider. A Northern Trust study showed that 92% of clients had a positive reaction to outsourced investment management services and 96% of advisors were satisfied with their decisions to outsource.
If you are open to outsourcing investment management, keep reading.