Johnne Syverson, a CFP and 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.
Before the firm began working with SEI, fund selection "used to take about 65 percent of our time," Syverson says. "And now the investment-management process takes 20 percent of our time." While Syverson and his partner David Strege still do the asset allocation for their 286 ultra-high-net-worth clients, he says SEI has taken the complexity out of the portfolio-construction process. Other popular third-party asset managers include: Placemark Investments, Parametric and AssetMark Investment Services.
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).
As a result, an increasing number of advisors are outsourcing any or all of this work. Just last year alone, the number of advisors who say they regularly outsource at least a portion of the portfolio-construction process surged to 34 percent in 2007, up from just 14 percent in 2006, according to Cerulli data. Cerulli analysts say they expect continued growth in outsourcing among client-centric advisors, who want to spend more time on client relationships and other activities. "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.
Those advisors who never outsource (46 percent) are finding other ways to ease the burdens of portfolio construction, according to Cerulli: Some are adding additional home-office support, increasing training or using a team approach. And some simply rely on their own research. Lee Rosenberg, an independent advisor with ARS Financial Services in Jericho, N.Y., says he uses resources such as Forbes and Morningstar to find time-trusted and reliable mutual-fund managers for his clients. He doesn't feel the need to outsource.
"In this particular market it is harder to outsource because it is a time when you should be getting closer to managing the relationship with a client—there is a lot more handholding when the market is dangerous," Rosenberg says. The more conversant the advisor is with the details of the portfolio investments, the better equipped he will be to assuage client's fears in turbulent markets. In addition, Rosenberg meets quarterly with a group of other independent advisors to discuss solutions and trade ideas. "Some b/ds favor certain fund groups, and there could be a new ideas out there that you're not exposed to on a daily basis," he says.
