Johnne Syverson, co-founder of RIA firm Syverson Strege & Company, in West Des Moines, Iowa, has been outsourcing money-manager selection and portfolio construction to SEI since 1995. The firm, which manages $300 million in assets, has three CFAs and eight CFPs on staff; Syverson says it's not that they don't know how to pick stocks or funds. But when they heard SEI was getting into the RIA outsourcing business, they decided they would rather use more of their time doing comprehensive financial planning for clients — and less time picking funds.
Using SEI has cut down the time the firm spends on fund selection to 20 percent from about 65 percent says Syverson. He and his partner David Strege still do the asset allocation for their 286 ultra-high-net-worth clients, but SEI has taken the complexity out of the portfolio-construction process.
Syverson is not alone in thinking the portfolio-construction process has gotten more complex. In fact, last year 75 percent of advisors said just that, compared to just 3.5 percent of advisors who said the process had actually become less complex, according to Cerulli Associates' “Advisor Metrics 2007” study, which surveyed over 750 advisors. For advisors who did find the process more complex, the following three reasons were most important: time consuming (24.3 percent); vast product selection (20.3 percent); increased risk or liability (15.9 percent).
And so, an increasing number of advisors are outsourcing some or all of this work. Just in the last year, the number of advisors who say they regularly outsource at least a portion of the portfolio-construction process more than doubled to 34 percent in 2007, up from just 14 percent in 2006, according to Cerulli data. Cerulli analysts expect continued growth in outsourcing among client-centric advisors, as they look to spend more time on client relationships. “As the product universe continues to expand, separating the wheat from the chaff becomes increasingly burdensome and important. Advisors are expected to increasingly rely upon professional buying teams (and trusted product providers) to help them identify best-of-class solutions to use with their practice,” says Scott Smith of Cerulli Associates.
