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How advisors should approach outsourcing

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While outsourcing is certainly beneficial for financial advisors, they need to proceed with caution before taking the plunge, according to a top Fidelity executive.

“Don’t just default to the lowest cost [outsourcer] as being the best alternative,” says Todd Roadman, senior vice president for Fidelity Clearing & Custody Solutions. “Advisors need to understand why they’re outsourcing and do their due diligence carefully.”

Planners that outsourced work related to at least two functions including technology, investment management and legal and compliance reported growth in the number of clients and AUM in the past year, according to a new Fidelity study.

“We found that advisors who outsourced were able to focus more on clients and build deeper relationships, Roadman says.
Nearly half (43%) of advisors surveyed by Fidelity say their firms currently leverage external consultants, third-party providers or individual specialists for select business functions.

Advisors said they used outsourcers to optimize overall firm efficiency and productivity (70%), fill a gap in internal expertise (62%), and save time (60%).

But doing proper due diligence is critical, Roadman cautions.

“Try to find a trusted source as you move through the due diligence phase,” says Fidelity SVP Todd Roadman.

“Make sure that the outsourcer can meet both your business needs and your client’s needs,” Roadman says. “Check their expertise and make sure they have a proven track record. See how they define and provide service levels. And while cost is an important consideration, it shouldn’t be the overriding one.”

Advisors should also consider working with a consultant or their custodian before choosing an outsourcer like a TAMP, a platform provider or various technology or system specialists, he adds.

“Try to find a trusted source who can help guide the conversations as you move through the due diligence phase,” Roadman says.

Nearly half of the nearly 400 advisors surveyed agreed that outsourcing is essential to achieving scale in growing a firm or practice.

Advisors who outsourced managed approximately $145 million in assets, compared to $110 million for those who didn’t, the survey found. They also had greater compensation, bringing in around $365,000 annually compared to $335,000 for those advisors who didn’t outsource.

Successful financial advisors in the future won’t allocate their time and energy the same way they do today, according to Roadman.

“Clients are increasingly looking for ways to meet their goals and find peace of mind,” he says. “To fulfill that holistic demand, advisors don’t have to do everything themselves. They shouldn’t be afraid to consider letting go of the areas outside their core competencies.”

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