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September 26, 2016 at 11:41 PM
Financial advisors who use third-party managers have a highly positive view of outsourcing, Northern Trust Asset Management research shows.
Northern Trust’s survey of 550 financial advisors in the second quarter is the firm’s latest biennial report of advisors’ views on external investment management. Since the inception of this research in 2010, the percentage of advisors outsourcing has held steady at about 40%, Northern Trust said.
Ninety-six percent of survey respondents who had an external management program said they were very satisfied with the arrangement, as did all those with more than $3 billion in assets under management.
Forty percent of these advisors said the ability to spend more time on their business was the most positive outcome of using external investment managers. Twenty-three percent cited favorable investment performance, and 15% noted an improvement in client satisfaction.
Asked what benefits their outsourcing program provided, 52% said they could spend more time with clients, and 48% cited consistency of investment management processes.
External management was not an all-or-nothing decision for these advisors. Just 17% said they outsourced all investment management activities in 2016, but 56% outsourced their portfolio management.
More than half said a combination of active and passive investments fulfilled portfolio construction strategies, and they did not anticipate changing that strategy in the next several years.
Forty-one percent of advisors reported they were outsourcing 75% of client assets, compared with 36% who said this in the 2014 study.
Fifty-two percent said they were likelier to use turnkey asset managers, and 41% RIAs, than other types of providers. Two new options in this year’s study also attracted interest: ETF strategists, 29%; and robo-advisors, 7%.
“Using a third-party manager can be a win-win scenario for advisors and clients, as is demonstrated by the percentage of client assets being outsourced,” Marie Dzanis, head of intermediary distribution at Northern Trust, said in a statement.
“Increased usage of investment management by turnkey asset managers, RIAs, ETF strategists and the increasing use of robo advisory or ‘fintech’ capabilities highlight the need for scalability.”
