This article was originally published on ETFTrends.com.
By Laura Gregg
As the downward pressure on advising fees and profit margin continues, advisors remain on the lookout for efficiencies that may help them stay competitive and grow their practice. Firms are trying out a variety of new strategies, including:
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offering hybrid pricing solutions
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digitizing more of the client experience
However, advisors are fundamentally in the business of relationship building, in which success still hinges upon the ability to understand their client—investment objectives, lifestyle goals, and risk tolerance, particularly for volatility.
A firm’s internal capacity for successfully lining up these client needs with the right strategic tools can play a decisive role in how, or even whether, it taps into external resources. Our latest research indicates that the majority of advisory firms and practices still choose to rely on their in-house competencies for investment management services—at least for the foreseeable future.
The Race To Scalability 2020, sheds light on how advisors decide whether and how to engage external support to grow their firms. As part of our 10-year commitment to this knowledge area, FlexShares recently talked to over 500 respondents in the advising profession, including RIAs (33%), independent broker/dealers (35%), hybrid/dually registered RIAs (13%), regional broker/dealers (8%), Insurance broker/dealers (6%). The size of assets under management across the respondent pool ranged from under $50 million (27%) to over $3B (13%).
KEY TAKEAWAYS
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Most advisory firms rely on in-house investment competencies
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Advisors keep investments in-house when it is core to their value proposition
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All advisors surveyed outsourced at least one non-investment activity
STICKING TO THE CORE BUSINESS PROPOSITION
Our data shows that the majority, 60%, of advisors decided not to engage outside expertise. The percentage has not varied much across six surveys over the decade. However, the percentage of non-outsourcing respondents saying their opinion won’t change has dropped dramatically—to 30%, down from 52% in 2010. We also learned that firms which keep investment management in-house are relying on external resources for non-investment related items.
The reasons why advisors decide to work—or not work—with external investment managers can vary and hinge upon internal strategic preferences for delivering and strengthening their core value proposition. Nearly a third—33% in 2020—of respondents told us they saw investment management research as their primary business proposition. Slightly higher than 32% in 2018, the percentage has been on an overall decline—from 54% in 2012, 56% in 2014, 44.6% in 2016. Retaining flexibility came in at a distant second with only 17.8% of survey participants reporting this concern. However, that number has gone up over time steadily from 7% in 2010.