Published December 13, 2017
Financial advisor practice growth was heavily emphasized during last week’s MarketCounsel Summit in Miami, Florida. Several discussions focused on this theme, with session titles such as, “Growth by Brand Development,” “Growing Beyond Four Walls,” and “Growth with OPM.” While the variety of presentations suggested multiple ways an advisor can grow his or her firm, one theme was consistent throughout: the future of financial advisor practice growth only occurs when an advisor outsources.
The Advisor of The Future
According to presenter David Bach, co-founder of Investor Education at AE Wealth Management, advisors should be focused on one thing: building the direct client relationship. “An advisor should be the relationship coach, the behavioral therapist, and the asset gatherer,” Bach told Summit attendees, noting that any tasks beyond those functions can – and should – be outsourced.
Research supports this idea. A recent Envestnet study titled “Drive Growth and Profitability: Focus on Core Competencies” reported that financial advisors who outsourced their asset management grew their business 35% more quickly than advisors who performed the asset management themselves. Additionally, portfolio returns were better when money management was put into models. Given these results, why are advisors reluctant to outsource certain business functions?
Value Proposition Redefined
I spoke to several advisors during the MarketCounsel Summit, and many of them expressed worries regarding their value proposition. Having been in the business for many years, they had sold themselves on the idea that they could “manage” client assets themselves. One advisor told me he hand-selects client portfolios from individual equities, while another said he acts as “rep as PM” using mutual funds and ETFs. Both advisors estimated that 50% of their time is spent managing assets, and that percentage is rising as a result of increased scrutiny on fiduciary responsibilities and fee justification.
Given how much time these advisors are spending on managing client assets themselves, imagine how much they could achieve if they outsourced that function instead. Outsourcing would free these and many other advisors to focus on building relationships with current and potential clients. Both advisors indicated that they “don’t love” managing assets, an oft repeated sentiment. So why aren’t more advisors outsourcing this function? The answer is simple: Advisors are worried about their perceived value to the client if the advisor delegates tasks they’ve previously managed themselves.
To overcome this challenge, advisors need to redefine their value propositions. A value proposition describes not only what problem you solve, but also what you bring to the table for your clients. Not sure how to describe your financial firm’s value proposition? There are multiple resources online designed to help. For example, a white paper called Advisors Alpha by Vanguard discusses how the advisor can clearly define his or her alpha (relationship management). The paper also provides tools to help advisors craft a customized value statement through Vanguard’s Client Relationship Center.
Focus on Client Relationships
Asset management is not the only task that advisors can outsource. During his presentation, David Bach told the audience that the advisors he works with outsource everything: back office management, investing, compliance, and marketing. For example, Bach’s team develops weekly radio show content for advisors across the country, and secures radio space in each advisor’s local region. Advisors merely need to record the script – often from his or her own desk – and send the recording to the local radio station. Bach reported that leads generated from these shows have been notable, and the advisor’s only investment is a $250 microphone and about an hour of his or her time. By outsourcing this function, the advisor can focus on acting as the core asset gatherer and client relationship manager.
Before outsourcing any business functions, it’s important to make sure your personality and vision aligns with the individual or firm who will be handling them for you. “Inviting in a capital partner is like inviting someone into your home to live with you and your family,” said John Furey, Principal of Advisor Growth Strategies. “You need to make sure it will work.” Sharing control of certain aspects of your business requires open communication and trust with your chosen partner.
Participants at the MarketCounsel Summit generally agreed that this is a great time to be a financial advisor. The consensus seemed to be that upcoming regulatory changes will continue to shape the industry and create abundant opportunities. But in order to grow your practice, you need bandwidth and this bandwidth comes from delegating or outsourcing functions that are not core to your service delivery. I encourage you to examine your business now and identify which functions you may be able to outsource and, align yourself for potential growth. After all, the future is now!
To find out how you can grow your business through outsourcing, take a look at the scale, service and support provided by Private Advisor Group and please reach out to Charlie Latimer.