Advisors who have held back on outsourcing investment management out of fear of their clients’ reactions may have been overly cautious, according to a study released Thursday by Northern Trust.
The report found 92% of clients had a positive reaction when their advisor told them they were outsourcing the investment management portion of their services, and 80% said they lost no clients when they transitioned to outsourcing.
Nothern Trust provides investment management among other financial services.
Large firms, those managing more than $150 million in assets, were a little more likely to see a negative response from clients initially. However, smaller firms were more likely to report losing clients or revenue as a result: 27% versus 16% of large firms.
The survey asked respondents to choose from four possible rationales they provided when explaining their decisions to clients. By far the most common positions taken were regarding resource allocation and alignment. Forty-three percent of respondents said they presented their decision as one that would allow them to leverage their time and expertise; 35% told clients the decision allowed them to hire the best money managers and replace them as needed.
Just 9% positioned the move to clients as one that allowed them to enhance or focus more on service. Five percent said the move was a way to reduce costs.
For the advisors themselves, 70% said their business grew after they started outsourcing investment management duties.
“Advisors greatly value their client relationships, and as the marketplace becomes more sophisticated, sometimes reaching out for that expertise can enhance your position with your clients,” Eric Schweitzer, managing director of the financial intermediary practice at Northern Trust, told ThinkAdvisor on Friday.
However, among advisors who don’t outsource, 56% say that’s because in-house management is part of their value proposition. Even though 31% said they would consider outsourcing if it were more affordable, 33% said it wouldn’t change their position.
The “Investment Management Outsourcing: Impact on Clients” report is the third in a biennial series that began in 2010. Northern Trust surveyed nearly 200 advisors for the report in November and December 2013.