Outsourcing: The key to securing higher profits and more affluent clientsArticle added by Don Wilkinson on December 4, 2009
Don Wilkinson

Don Wilkinson

Newport Beach, CA

Joined: August 21, 2010

My Company

DFW & Associates

Although the term "outsourcing" can carry a negative connotation of going overseas among some circles, in the world of wealth management utilizing outside sources to provide essential services can increase the profitability of the firm as well as attract more affluent clients.

Outsourcing is an essential element with some offices today, because in this era of economic uncertainty where internal costs are rising and assets and revenues are plunging, utilizing outside services can eliminate the necessity of cutting staff and other cost cutting measures.

Says Ed Orazem, president of Fidelity Family Office Services, "Outsourcing is probably the best way for advisors to avoid cutbacks in their operations."

Thus, cutting costs is probably reason one for wealth management firms to outsource more and more services in today's economic climate. When outsourcing elements are introduced into the firm, the advisor can reduce the need to invest in non-core business functions, increasing the opportunity to invest in profit making projects.

Further, outsourcing provides the firm with customized services for less when compared to keeping them in-house. In addition, employee savings can be stabilized in recruitment, supervision, salary, and benefits.

Finally, less dependency can be found with reduced investment in expensive in-house software and technological breakthroughs. In fact, many third party platforms provide complementary CRM systems.

What are some of the outsourcing elements that are a good fit for a family office? The list can be extensive because management operations are geared around the needs of the clients, and no office has the same business model. So, outsourcing becomes open-ended -- from personal client services to professional training of office personnel, etc.

Some of the most common services requested by clients, according to Vogel Consulting, Chicago, in order of most desirable are:
    1. Tax planning and compliance
    2. Estate planning
    3. Investment planning
    4. Manager due diligence
    5. Concierge services
    6. Performance reporting
    7. Risk management
    8. Insurance review
    9. Client meetings and education
    10. Strategic philanthropy and administration
Another example we are seeing is the growth of "collection planning," which could be the subject of another article. Collection planning is the advisor's responsibility for a collection of works of art, sculpture and other assemblage of valuables. The advisor will supervise the collection with insurance coverage, copyright protection, security, gifting and cataloging. This is a $7 trillion business globally, marking the ultra wealthy as prime candidates for this type of service. It's just starting now as a ground floor opportunity.

The core business of the advisor most often remains internal. Most essential, as you might imagine, is the asset management responsibilities for the client, which is key for the firm to maintain control and confidence for the individual client's prime interest. Also, asset management is very necessary for the firm to retain the advisor business.

Outsourcing can lead to greater productivity of wealth management firms by letting them focus on what they are good at -- asset management, financial planning, estate planning and tax planning, as mentioned in a recent article by Gregory Bresiger in Private Wealth.

In short, the advisor can concentrate on core competencies, while contracting with outside firms offering portfolio measurement (TAMPS), trust accounting, Web site creation, etc.

Outside firms, on the other hand, can offer many types of services that clients want and demand. It is difficult for the advisor to keep a staff on board that is knowledgeable about all the products and services sought by the very wealthy. The wealthy often want services that are not on the agenda of most wealth management advisors and that they are not even capable of providing.

These services could include getting theater tickets for a Broadway show, access to celebrities for teenage daughters, or just walking the dog. For these types of concierge services, the need arises for a boutique firm. In fact, the smaller boutique advisory offices are making inroads in securing high affluent family office clients by offering a variety of such personalized services. This is especially true if the interested party of the family happens to be the woman of the house. Other reasons that very wealthy families are pulling away from the big brokerage houses and banks with their assets include mistrust and looking for boutique wealth management firms that give objective advice.

Further, offering a complete line of services in-house and outside makes a particular office more attractive in securing affluent clients. Thus, outsourcing appears to be here to stay and will grow in the future.

Outsourcing is not without limitations. Delegating too many functions to one provider doing wrong can produce disastrous results with the wealthy and mar a relationship. The economics of doing business has changed all that. For example, outsourcing today is being utilized by 90 percent of family offices nationwide.

So how does a wealth management office determine what services stay in-house and what can be outsourced?

The direction is not one service or function, but remains the discretion of the owners and principals. One thing is certain, however, according to Fidelity executive Ed Orazem: "The wealth management office must always remain the primary financial advisor."

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