Northern Trust Survey Finds Decision to Outsource Investment
Activities Leads to Growth for 70% of Respondents
Just over half (53 percent) of advisors outsource via turnkey asset
management programs (TAMPs), and more than two-thirds (68 percent) say
they partner with or outsource to multiple firms.
29 percent of respondents outsource all investment management
activities, and 57 percent say they outsource just specific asset
classes and strategies. Back-office operations, investment manager
research, product selection and portfolio monitoring all are among
activities that are being outsourced.
Half of the respondents (48 percent) outsource more than half of their
Four out of 10 advisors say they outsource investment activities on
all client accounts. Those who selectively outsource are likelier to
outsource large accounts, new accounts and accounts employing
alternative strategies or complex portfolios.
The primary decision drivers for outsourcing have changed, with
“access to alternative investment expertise,” “portfolio construction”
and “portfolio monitoring” at the top of the 2014 list. In 2012, the
top three reasons were: “access to asset allocation models,” “access
to managers we could not access on our own,” and “potential to
generate alpha through best investment ideas.”
Financial advisors who outsource investment management activities to
external providers overwhelmingly say their decision was greeted
positively by clients and in most cases has led to business growth,
according to a new study by Northern Trust.
In the report, “Investment Management Outsourcing: Impact on Clients,”
92 percent of advisors say that clients responded positively when they
initially heard of the firm’s decision to outsource; 80 percent reported
no clients were lost in the transition to outsourcing; and seven out of
10 advisors say their business grew as a result of their decision to use
external providers for at least a portion of their investment management
The new research reaffirms the positive views of outsourcing found in
earlier Northern Trust surveys of advisors, with 90 percent of
respondents satisfied or very satisfied with the experience. A majority
of respondents (57 percent) said outsourcing frees up more time to spend
“Advisors tell us that the best use of their time is working with
clients,” said Eric Schweitzer, Managing Director of the Financial
Intermediary Practice at Northern Trust. “Outsourcing is gaining in
popularity because it accommodates the time that advisors need to spend
with clients while also assuring that investment portfolios benefit from
specialist expertise as well as advisor oversight. It’s a win-win
The study is Northern Trust’s third biennial report on financial advisor
use of investment outsourcing, following up on 2010 and 2012 surveys.
The 2014 study is based on responses from nearly 200 financial advisors
with assets under management ranging from under $50 million to more than
$1 billion. Among those who have decided to outsource:
Among survey respondents who do not outsource investment management, 56
percent say in-house management is central to their firm’s value
proposition to clients. Non-outsourcing advisors report spending a
significant amount of time on investment manager research, portfolio
construction and monitoring, working with technology and related
activities. The toll is greatest on advisors from larger firms, half of
whom spend 20 hours a week on key investment management tasks.
While 31 percent of those who do not outsource say solutions would need
to be more affordable for them to consider the option, one-third say
their position on outsourcing will not change.
ABOUT THE SURVEY
Over a three-week period in November and December 2013, nearly 200
advisors responded to a survey of AdvisorPerspectives.com subscribers.
Answers to the survey’s first question split respondents into two
groups: those who outsource and those who don’t. Analysis of the
research included consideration of the advisors’ firm type (independent
financial planning/investment advisory, RIA or regional broker-dealer),
firm size (our smaller firms label applies to those with $150 million in
assets or less, larger firms have $150 million in assets or more) and
compensation model (asset-based or a combination of commissions and
fees). Financial advisors used the survey’s comment fields to add
additional considerations or elaborate on their responses. Their
verbatim comments appear throughout the report.
To download a copy of the full research report and for more information
including an infographic, videos and links to previous surveys, see www.northerntrust.com/outsourcing.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of
investment management, asset and fund administration, banking solutions
and fiduciary services for corporations, institutions and affluent
individuals worldwide. Northern Trust, a financial holding company based
in Chicago, has offices in 18 U.S. states and 18 international locations
in North America, Europe, the Middle East and the Asia-Pacific region.
As of December 31, 2013, Northern Trust had assets under custody of
US$5.6 trillion, and assets under investment management of US$884.5
billion. For more than 120 years, Northern Trust has earned distinction
as an industry leader in combining exceptional service and expertise
with innovative products and technology. For more information, visit www.northerntrust.com
or follow us on Twitter @NorthernTrust.
Northern Trust Corporation, Head Office: 50 South La Salle Street,
Chicago, Illinois 60603 U.S.A., incorporated with limited liability in
the U.S. Global legal and regulatory information can be found at http://www.northerntrust.com/disclosures.
Northern Trust Corporation
Source: Northern Trust Corporation