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Technology > Marketing Technology

The Outsourcing Boom: Technology and Beyond

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The RIA industry’s rapid growth during the past decade has created a whole new ecosystem of service providers that cater specifically to independent advisors. That means advisors can now outsource more tasks than ever to a growing number of firms that offer solutions designed to meet RIAs’ unique needs and goals. 

What’s driving these trends? More robust technologies are certainly making it easier for advisors to find outsourced solutions for virtually all areas of their practices. And as more service providers enter the arena and compete for advisors’ business, the cost of their offerings is becoming more attractive. 

But perhaps the most important driver is the evolution of independent advisors themselves. As competition in the RIA space intensifies, advisors are redefining which of their many operational tasks are core to their value propositions and which are secondary. Increasingly they are recognizing the need to focus on those high-value, client-facing tasks that help truly differentiate themselves in a crowded field, while outsourcing lower-value tasks that are less vital to their future growth. 

Our data reveals that two areas in particular—technology and managing compliance—are now seen by many advisors as good candidates for outsourcing. We’ll look at technology outsourcing trends in the next section, and turn our attention to compliance outsourcing next month. 

Technology Outsourcing trends
Technology is the single most outsourced area of an advisor’s practice. A full 75% of advisors surveyed in Schwab’s 2011 RIA Benchmarking Study* outsource some or all of their technology functions. 

In particular, there are two areas of technology where advisors report great interest in third-party outsourced solutions:

  • Data management/reporting. Outsourcing of data management (such as downloading, reconciliation and other portfolio management system-related tasks) increased from 19% of firms in 2010 to 27% in 2011, while outsourcing of performance reporting rose from 15% to 23% of firms.*
  • Web-based solutions. Our most recent discussions with advisors tell us that more RIAs are looking to house their technology not in their own offices but “in the cloud” via remote data centers. Most technology-related functions—CRM, portfolio management, trading and rebalancing, among others—can now be taken off site and accessed in the office and elsewhere through a web-based interface. 

Advisors who leverage these types of solutions report powerful benefits in their practices, including:

  • Cost savings. Users of data management and reporting outsourcing services estimate that they save approximately 30% versus managing the same functions in house. *
  • Time savings. Working with web-based solution providers removes the need for advisors to buy and install technology and manage backups, upgrades and integrations themselves. Instead, all of these tasks are handled by the provider—enabling advisors to simply access the technology on demand when needed.
  • Ability to focus on core competencies. Advisors main focus is to provide exceptional service to existing clients and to attract new business. Many would prefer not to spend their time managing data transactions and worrying about server upgrades. Outsourcing these lower-value-producing functions can help advisors focus on meeting clients’ needs, and capturing new opportunities that can potentially boost the bottom line.
  • Scale. An RIA firm can only manage so much data, while data centers and other outsourcing firms typically have large teams and sizable resources devoted exclusively to this job. Advisors who outsource therefore can potentially grow faster without having to expand their resources significantly.
  • Enhanced data security. Service providers such as data centers have been known to offer high-quality data security measures that can be superior to the data protection used by most advisory firms. In short, client data may be safer if it’s moved off site. 

Strategy First, Technology Second
Keep in mind that smart technology decisions are best made within the broader context of a strategic business plan—one that reflects a firm’s specific needs, goals and unique value proposition. Consistently we see that the advisors who benefit the most from technology solutions are those who first define a vision for their practices, and then choose products and services that support that vision.

This is especially important when it comes to technology outsourcing due to the sheer number of choices available, from comprehensive turnkey solutions to individual options for specific functions. Getting advice and guidance from a variety of sources (such as custodians, online user groups, peer study groups and industry organizations) can help identify the best areas to outsource—and find the ideal providers to do the job right. 

* Source: 2011 RIA Benchmarking Study from Charles Schwab, fielded February and March, 2011. Study contains self-reported data from 820 firms. 

Charles Schwab & Co., Inc.(Schwab) is not affiliated with the content on this website and has no control over how it uses the information you share. Content posted on this website should not be considered as a recommendation, endorsement, or solicitation of any kind by Schwab.  Any opinions or statements by third parties on this page are their own and may not be representative of the experience of others or indicative of future performance or success.

For general informational purposes.

Schwab Advisor Services™ serves independent investment advisors and includes the custody, trading and support services of Charles Schwab & Co., Inc (“Schwab”). Independent investment advisors are not owned, affiliated with or supervised by Schwab. (1111-7737)


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