Investment outsourcing a key US trend


By Krystine Lumanta

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Advice business models that incorporate the outsourcing of investment management are becoming increasingly prevalent in the United States, although Australian advisers are just beginning to open up to the strategy and its benefits.

After partaking in a US study tour this year to meet with leading advisory practices, Implemented Portfolios managing director Santi Burridge said advisers were more willing to outsource investment management so they could focus on strategy and client relationships.

“In my previous trips to the United States I saw that emerging as a trend,” Burridge told a State Street Global Advisors roundtable in Sydney yesterday.

“On this trip, it was beyond a trend and more like a revolution that’s occurring where advisers are now really challenging their value proposition.

“Advisers in Australia are starting to become more attracted to the model.”

In addition, a key trend with independent registered advisers in the US was they distinguished themselves as either an asset gatherer or an asset manager and were able to communicate their position clearly as part of their value proposition, he said.

Treysta Wealth Management head of wealth management Mark Nagle said asset gatherers gained more traction in their businesses and at a faster pace as they were able to deploy their time strategically with planning.

“From an assets-under-management perspective, it was the asset gatherers that were growing rapidly, but in order to do that they had to outsource the investment piece,” Nagle said.

“If you’ve decided you’re an asset manager, the businesses tend to be smaller and you need to be brilliant at it – confident and comfortable that you’re going to be able to manage those assets in a way that will keep money sticky over a significant period of time because that’s your business model.

“Essentially, we are seeing that division in the marketplace in the United States.”

Treysta outsourced about 60 per cent of its investment management to Implemented Portfolios, which allowed more elasticity in the advice business, whereby it could charge lower administration fees and higher advice fees, he said.

Implemented Portfolios practice development manager Katie Gill said there were different arrangements for outsourcing.

“A lot of the firms we saw outsourcing the investment management piece were doing it to different degrees, so perhaps the asset class or the back-office functions related to investment management, but they were using outsourcing to be able to focus on the areas where they thought they saw value,” Gill said.

“It was clearly a trend and figures from an Envestnet study found 58 per cent of [US] advisers said they were outsourcing some aspect of their investment management and 38 per cent indicated they would be increasing the amount of outsourcing in their business over the next 12 months.

“So there is this trend to outsource what they see as non-core to the business.”

Another finding from the education trip was that US institutions and wire houses were losing business rapidly, Burridge said.

“We saw independence winning,” he said.

“There’s now 180 to 200 registered independent advisers in the United States with $100 billion-plus under management, and they’re seeing 23 per cent of all new funds heading towards independent advice businesses, plus 13 per cent per annum growth of independent advisers at the expense of the banks and the wire houses.

“They’re currently managing nearly 36 per cent of total assets and growing.”

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