Outsourcing asset management, or putting clients’ wealth in unified managed accounts, represents a growing trend for advisory firms.

In a study released in September, Cerulli Associates researchers concluded that UMAs have grown more than 23% in the past year.

Most advisors expect to increase those accounts to increase next year, according to the study.

“Mostly, we have been overwhelmed by the benefits of outsourcing portfolio management,” says Tom O’Shea, an associate director at Cerulli Associates in Boston, who conducted the study.

Outsourcing frees up advisors’ time and allows them to increase the scale of their practices, he says.

They may spend more time helping clients identify and meet their financial goals, O’Shea says.

And outsourcing allows for more consistent investment returns from a firm because one team member no longer may underperform when managing a portfolio, he says

There are impediments, however, that slow some advisors from jumping on the portfolio management outsourcing bandwagon, O’Shea says.

For starters, some express concerns about losing their identities.

“Many advisors think their whole reason for existence is portfolio management,” O’Shea says.

The advisors may have earned finance degrees and think of themselves as “math people,” he says.

But, “if you think you are going to get paid for what technology can do, think again,” O’Shea says.

Although he advocates outsourcing portfolio management, he nevertheless encourages advisors to use caution when making the shift.

The providers of the outsourced portfolio management are not generally ranked or rated.

So advisors should perform due diligence, asking providers how they transmit trade signals and what their rotation policy is, to ensure that all investors are treated equitably, O’Shea says.

Also advisors should engage enough with the providers to understand the portfolio construction process and evaluate if it is consistent with the investment strategy that the managers pledged to follow, he says.

Reginald A.T. Armstrong, president, client wealth manager and partner of Armstrong Wealth Management Group in Florence, South Carolina, had adopted a hybrid approach to outsourcing portfolio management.

He has outsourced the management of some clients’ assets but not others.

Outsourcing works “for clients who want to buy and hold,” Armstrong says.

“One of the reasons we outsource is my team has more time and we can do more for those clients and get more consistent results,” he says.

Other clients, however, share investment goals that require more active portfolio management, such as trend following.

Those distinctions are unrelated to the size of the assets, Armstrong says.

Instead, they hinge on clients’ investment goals, he says.


This story is part of a 30-30 series on savvy ways on modernizing your practice

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Miriam Rozen

Miriam Rozen, a Financial Planning contributing writer, is a staff reporter at Texas Lawyer in Dallas. Follow her on Twitter at @MiriamRozen.