Financial advisors who outsource portfolio construction spend just 10.6% of their time on investment management, giving them more time to focus on high-demand service offerings. This approach, according to recent research from Cerulli Associates, leaves them 63.5% of their time to spend on client-facing activities, mainly meetings.
Outsourcers — advisors who cede discretion without making adjustments to models — are typically younger advisors with less experience than insourcers, who build bespoke portfolios for clients. Model users tend to be younger than 49 and have an average of 18.2 years of experience.
They also often have leaner staff headcounts and, as a result, can benefit from outsourcing some or all of their portfolio construction responsibilities.
The optimal segmentation, Cerulli said, shows that advisors who have the capabilities to act as insourcers have an average client investable asset size of more than $6 million. Outsourcers have an average client size of some $800,000.
“In many cases, broker-dealer training programs have done a good job educating up-and-coming junior advisors on the benefits of leveraging model portfolios,” Kevin Lyons, a senior analyst in Cerulli’s product development practice, said in a statement. “As a result, they are more likely to feel comfortable and confident relying on financial planning and, increasingly, tax management as the primary pillars of their competitive positioning.”
Cerulli noted that advanced planning techniques, such as tax management, have become increasingly important as advisors seek to move up the wealth spectrum and serve affluent and high-net-worth clients.
Four in 10 outsourcer advisors said they find these services very valuable, a sign that they are choosing to use model portfolios to focus on client acquisition and moving upmarket.
Cerulli recommends that model providers who want to retain and attract more advisors focus on the service offerings and support that outsourcers value most. For instance, 87% of outsourcers considered competitive product information, best practices from other advisors and access to portfolio managers/product specialists are at least somewhat valuable to them.
Lyons said model providers must keep the advisor informed on the nuances of the products and the asset allocation framework of the model, so they can pass that knowledge along to their clients during meetings.
“Additionally,” he said, “the need for best practices speaks to this segment’s desire to learn and grow, likely part of the reason they leveraged models to help them focus more time on growing their practices.”
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